Question: The spot exchange rate S = $0.75 US / AUD. The U.S. interest rate is equal to the interest rate in Australia of 3%. A

The spot exchange rate S = $0.75 US / AUD. The U.S. interest rate is equal to the interest rate in Australia of 3%. A futures contract on one million AUD with one-year delivery is trading at F = $0.72 US / AUD. Which of the following statements is CORRECT?

a. An arbitrage opportunity exists and involves borrowing 1,000,000 AUD
b. An arbitrage opportunity exists and involves buying the futures contract.
c. No arbitrage opportunity exists
d. An arbitrage opportunity exists and involves borrowing $970,873 U.S.

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