Question: Assume that the U . S . one - year interest rate is 4 % , and the Australian one - year interest rate is

Assume that the U.S. one-year interest rate is 4%, and the Australian one-year interest rate is 8%. The U.S. expected annual inflation is 6%, while the Australian inflation is expected to be 7%. You have USD100,000 to invest for one year and you believe that ex-ante relative PPP holds. The spot exchange rate of AUDUSD is 0.689. What will be the expected USD holding period return on your investment if you invest in the one-year Australian dollars (AUD) deposit in the Australian money market?

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