You work as a currency trader at the Big Time Bank and specialise in trading the AUD USD The current spot rate is USD AUD 0 678 and you have forecast a rate of USD AUD 0 6915 in 90 days The borrowing and lending rates in Australia and the US are Currency Lending rate Borrowing rate US dollar 2 3 2 5 Australian dollar 1 4 1 8 You will speculate on the change in the exchange rate and you have the authority to borrow $10 million of either currency a) Which currency will you borrow and which will you invest in Explain why (1 mark) b) What is your profit in AUD Show all calculations in detail (4 marks)

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Question: You work as a currency trader at the Big Time Bank and specialise in trading the AUD USD. The current spot rate is USD AUD

You work as a currency trader at the Big Time Bank and specialise in trading the AUD USD. The current spot rate is USD AUD 0.678 and you have forecast a rate of USD AUD 0.6915 in 90 days. The borrowing and lending rates in Australia and the US are:

Currency	Lending rate	Borrowing rate
US dollar	2.3%	2.5%
Australian dollar	1.4%	1.8%

You will speculate on the change in the exchange rate and you have the authority to borrow $10 million of either currency.

a) Which currency will you borrow and which will you invest in? Explain why. (1 mark)

b) What is your profit in AUD? Show all calculations in detail. (4 marks)

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