Question: Questions in real exam will be selected from this list. Questions will have different numbers/different currencies. a. 1. Spot rate USD/ARS 65.93. Annual inflation estimate

Questions in real exam will be selected from this list. Questions

Questions in real exam will be selected from this list. Questions will have different numbers/different currencies. a. 1. Spot rate USD/ARS 65.93. Annual inflation estimate is 10% for Argentina and 1% for USA. What is your estimate for USD/ARS for one year from today based on Purchasing Power Parity? 2. Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australia. What should be the one-year forward rate USD/AUD per interest rate parity condition? b. Show that there is no arbitrage opportunity based on the forward rate that you computed in part a. Compute arbitrage profit if one-year forward rate is USD/AUD 1.60. Pick any initial borrowing amount of your choice. C

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