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QUESTION
If one-year nominal interest rate in the U. is 3%, while the one-year nominal interest rate in Australia is 5%. The spot rate of the Australian...
If one-year nominal interest rate in the U.S. is 3%, while the one-year nominal interest rate in Australia is 5%. The spot rate of the Australian dollar is $.96. Interest Parity is held. You will need 5 million Australian dollars in one year. Today, you purchase a one-year forward contract in Australian dollars. How many U.S. dollars will you need in one year to fulfill your forward contract?
AnsCALCULATION OF US $ REQUIRED TO BUY 5 MILLION AUS $ AFTER 1 YEARUS $/ Aus $ (S)rAUS $ (%)rUS $ (%) 0.9605%3% As per IRP,US $/ Aus $ (F)(Should be 1 yr F)US $ required to buy 5 Million...