How do you determine the correct order here? Borrow, Sell, Invest, Buy as opposed to borrow, buy, invest, sell? And is the borrowed currency determined by lower interest rate? 

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. (1) Borrow A$1,176,471 and repay A$1,225,883 in one year. (2) Sell spot A$1,176,471 for $1,000,000. (3) Invest $1,000,000 in the US. The maturity value will be $1,035,000. (4) Buy A$1,225,883 forward for $992,965. Arbitrage profit = $1,035,000 - $992,965 = $42,035. . (1) Borrow A$1,176,471 and repay A$1,225,883 in one year. (2) Sell spot A$1,176,471 for $1,000,000. (3) Invest $1,000,000 in the US. The maturity value will be $1,035,000. (4) Buy A$1,225,883 forward for $992,965. Arbitrage profit = $1,035,000 - $992,965 = $42,035.

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To determine the correct order of these actions you need to follow the sequence that allows you to m... View the full answer