As presented and discussed in the lecture in week 5, the figure below shows the relation between the interest rate differential (between the home country - Australia and a foreign country - Japan) and forward premium/discount. Comment on the following statement: "Points below the IRP line such as points A and B represent profit-making opportunities to investors residing in the home country." in-it (%) Forward Discount (%) Zone of potential covered interest arbitrage by 2 foreign investors -4 -2 -2 IRP Line ● A B 2 4 Zone of potential covered interest - arbitrage by investors residing in the hom Forward Premium (%)

As presented and discussed in the lecture in week 5, the figure below shows the relation between the interest rate differential (between the home country - Australia and a foreign country - Japan) and forward premium/discount. Comment on the following statement: "Points below the IRP line such as points A and B represent profit-making opportunities to investors residing in the home country." in-it (%) Forward Discount (%) Zone of potential covered interest arbitrage by 2 foreign investors -4 -2 -2 IRP Line ● A B 2 4 Zone of potential covered interest - arbitrage by investors residing in the hom Forward Premium (%)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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