The one-year interest rate in Australia is given as 0.5% and the one year interest rate in New Zealand is given as 1%. The spot rate of the New Zealand dollar is A$0.95. You will receive 10,000 New Zealand dollars in one year. (show calculation)

(a) Using the international Fisher effect, calculate the expected change in the exchange rate for the New Zealand dollar.

(b) Using your answer to (a), calculate the amount of Australian dollars you will receive when converting the New Zealand dollars to Australian dollars in one year at the spot rate at that time.

Answer rating: 100% (QA)

Answer a The expected change in the exchange rate for the New Zealand dollar can be calculated us... View the full answer