James Clark is a foreign exchange trader with Citibank. He notices the following quotes.
|Spot exchange rate||
|Six-month forward exchange rate||
|Six-month $ interest rate||
2.5% per year
|Six-month SFr interest rate||
2.0% per year
a. Is the interest rate parity holding? You may ignore transaction costs.
b. Is there an arbitrage opportunity? If yes, show what steps need to be taken to make an arbitrage profit. Assuming that James Clark is authorized to work with $1,000,000, compute the arbitrage profit in dollars.