b) If the spot exchange rate quote today is USD 1 = AUD 1.50 and the...
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b) If the spot exchange rate quote today is USD 1 = AUD 1.50 and the one-year U.S. interest rate is 8 percent, and the one-year Australian dollar interest rate is 5 percent, what would be the forward premium and forward rate of the Australian dollar in the U.S. market according to the interest rate parity (provide a calculation)? What makes it a forward premium? c) Assume that the spot rate of the Australian dollar is $0.80 and the one-year forward rate is $0.79. The interest rate in Australia is 10 percent, and the U.S. interest rate is 6 percent. What would be the action of U.S. investors in line with covered interest arbitrage? Explain with a calculation. 3 5 Page 1 of 2 b) If the spot exchange rate quote today is USD 1 = AUD 1.50 and the one-year U.S. interest rate is 8 percent, and the one-year Australian dollar interest rate is 5 percent, what would be the forward premium and forward rate of the Australian dollar in the U.S. market according to the interest rate parity (provide a calculation)? What makes it a forward premium? c) Assume that the spot rate of the Australian dollar is $0.80 and the one-year forward rate is $0.79. The interest rate in Australia is 10 percent, and the U.S. interest rate is 6 percent. What would be the action of U.S. investors in line with covered interest arbitrage? Explain with a calculation. 3 5 Page 1 of 2
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Spreadsheet Modeling & Decision Analysis A Practical Introduction to Management Science
ISBN: 978-0324656633
5th edition
Authors: Cliff T. Ragsdale
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