Currently, the spot exchange rate is $0.85/A$ and the one year forward exchange rate

$1.49 Excluding Tax

Complete Solution:

Solution Available in PDF File.

-
+

Specs

SKU: AT-1673 Categories: , Tags: , , ,

Description

QUESTION:

Currently, the spot exchange rate is $0.85/A$ and the one-year forward exchange rate is $0.81/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,176,471, which is equivalent to $1,000,000 at the current spot rate.

a. Determine if IRP is held between Australia and the United States.

b. If IRP is not holding, explain in detail how you would realize a certain profit in U.S. dollar terms.

Explain how IRP will be restored as a result of the arbitrage transactions you carry out above.


Reviews

There are no reviews yet.

Be the first to review “Currently, the spot exchange rate is $0.85/A$ and the one year forward exchange rate”

Your email address will not be published. Required fields are marked *