The current exchange rate is 0.9 USD for 1 AUD.

Each year the value of the USD relative to the AUD can either

go up by 25% with probability 25% stay constant with probability 50%

go down by 20% with probability 25%

a)Fill out the following table for the exchange rates and the corresponding probabilities.

b)We obtain 100 USD in one year from now. Calculate the AUD value in one year from now of the 100 USD payment (without discounting).

c)Calculate the variance of the AUD value in one year from now of the 100 USD payment (without discounting).

d)We obtain 100 USD in three years from now. Calculate the AUD value in three years from now of the 100 USD payment (without discounting).

e)Calculate the variance of the AUD value in three years from now of the 100 USD payment (without discounting).

f)What can we conclude for the relationship between maturity and exchange rate risk?