Question: Hello, I have two questions that I cannot understand where I went wrong. Could someone explain? Thank you very much. Q1: Woodside Energy, an Australian

Hello, I have two questions that I cannot understand where I went wrong. Could someone explain?

Thank you very much.

Q1: Woodside Energy, an Australian multinational company, has borrowed funds from China and will pay 2 million Chinese yuan (CNY) including interest in one year. Also, Woodside Energy has the following market information and considers that the International Fisher Effect (IFE) does hold. How much Australian dollar the Woodside Energy will pay that equivalent to 2 million CNY after one year? (enter the whole number with no sign or symbol)

Aussie Dollars (A$) Chinese Yuan(CNY) Spot Rate

Real Interest Rate 3.95% 3.95%

Nominal Interest Rate 7.51% 12.07%

0.2087A$/CNY

Workings below:

Step 1 - Calculate expected inflation rate for each currency

Expected inflation rate = Nominal i/r - Real i/r

AUD: 7.51% - 3.95% = 3.56%

CNY: 12.07% - 3.95% = 8.12%

Step 2 - Calculated the expected change in foreign currency rate after one year

ef = ((1 + Ih) / (1 + If)) - 1

ef = ((1 + 0.0356) / (1 + 0.0812)) - 1

= -0.042175

= - 4.1275%

Step 3 - Calculate After 1 Year Spot Rate

(0.2087 / 1 ) * ((-4.1275% + 1)) = 0.1999 AUD/CNY

Step 4 - Convert CNY to AUD

1 CNY = 0.1999 AUD

2,000000 CNY = 399800 AUD (The correct answer is: 400416)

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Q2 Find the value of A in the following table (enter the whole number with no sign or symbol).

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