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QUESTION
The one year interest rates in Australia and US are 3% and 1%, respectively. The current spot rate is $0.75/AUD. MUST SHOW ALL STEPS What should the...
The one year interest rates in Australia and US are 3% and 1%, respectively. The current spot
rate is $0.75/AUD. MUST SHOW ALL STEPS
- What should the one year forward rate be (if IRP holds).
- If the forward rate is $0.70/AUD is there an arbitrage? If so, how can an arbitrageur incorporate
a cashless (i.e. not use any of her current cash) arbitrage? Hint: She will need to borrow in the
US or Australia at the current rates. Assume that she will use an amount of 1,000,000 USD or
AUD (you must choose the right one...)
