1. sw**s franc ** at a forward premium. its current forward value ($0.505/sfr) ** greater than its current spot value ($0.500/sfr).2. covered interest differential "in f**or of switzerland" ** ((1 + 0.005)+(0.505) / 0.500) - (1 + 0.01) = 0.005. (note that interest rate used must match the time period of the investment.) there ** a covered interest differential of 0.5% for 30 days (6 percent at an annual rate). the investor can make a higher return, covered against exchange rate r**k, by investing in sfr-denominated bonds, so presumably the investor should make th** covered investment. although the interest rate on sfr-denominated bonds ** lower than the interest rate on dollar-denominated bonds, the forward premium on the franc ** larger than th** difference, so that the covered investment ** a good idea.3. the lack of demand for dollar-denominated bonds (or the supply of these bonds as investors sell them in order to shift into sfr-denominated bonds) puts downward pressure on the prices of bonds — upward pressure on interest rates. the extra demand for the franc in the spot exchange market (as investors buy sfr in order to buy sfr-denominated bonds) puts upward pressure on the spot exchange rate. the extra demand for sfr-denominated bonds puts upward pressure on the prices of sw**s bonds— downward pressure on sw**s interest rates. the extra supply of francs in the forward market (as u.s. investors cover their sfr investments back into dollars) puts downward pressure on the forward exchange rate. if the only rate that changes ** the forward exchange rate, th** rate must fall to about $0.5025/sfr. with th** forward rate and the other initial rates, the covered interest differential ** close to zero. 20210311