Answer:
12.35%
Explanation:
Data provided in the question:
Spot rate today of Swiss franc = $0.60
1-year forward rate as of today for Swiss franc = $0.63
Expected spot rate 1 year from now = $0.64
Rate on 1 year deposits denominated in Swiss francs = 7%
Rate on 1 year deposits denominated in U.S. dollars = 9%
Amount invested = $1,000,000
Now,
Amount with Swiss franc = Amount invested ÷ Spot rate today of Swiss franc
= $1,000,000 ÷ 0.60
= $1,666,666.67
After 1 year = $1,666,666.67 × ( 1 + 0.07)
= $1,783,333.33
1 year Forward value = $1,783,333.33 × 0.63
= $1123499.99
Therefore,
Yield = [ $1123499.99 - $1,000,000 ] ÷ $1,000,000
= 0.1235
or
= 0.1235 × 100%
= 12.35%
