Question: Let x be a positive number and suppose that the annual Australian dollar interest rate is x % and the United States dollar annual interest

Let x be a positive number and suppose that the annual Australian dollar interest rate is x% and the United States dollar annual interest rate is 5.5%. The spot rate for the United States dollar is $A1.58.

1, Using interest rate parity, calculate the forward rate premium of the United States dollar with respect to the Australian dollar in terms of x.

2, Using your answer to (a), find x if the one-year forward rate for the United States dollar is A$1.55.

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