Question: CORRECT ANSWER IS THERE. JUST NEED HELP ON HOW TO GET THE ANSWER. THANK YOU 11) The 1-year risk-free interest rate in the U.S is

CORRECT ANSWER IS THERE. JUST NEED HELP ON HOW TO GET

CORRECT ANSWER IS THERE. JUST NEED HELP ON HOW TO GET THE ANSWER.

THANK YOU

11) The 1-year risk-free interest rate in the U.S is 3% and the 1-year risk free interest rate in Australia is 7%. The current spot rate is USD 0.8/AUD. You decide to implement a currency carry trade by borrowing 1 million of USD at 5% for one year, and investing in AUD one year risk free bonds. What is your uncovered interest rate arbitrage profit/loss if the USD/AUD exchange rate in one year turns out to be USD 0.85/AUD? Ans: USD 86,875 profit 12) The 1-year risk-free interest rate in the U.S is 3% and the 1-year risk free interest rate in Australia is 7\%. The current spot rate is USD 0.8/AUD. You decide to implement a currency carry trade by borrowing 1 million of USD at 5% for one year, and investing in AUD one year risk free bonds. What is your uncovered interest rate arbitrage profit/loss if the USD/AUD exchange rate in one year turns out to be USD 0.75/AUD? Ans: USD 46,875 loss

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