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The following information is the same for Questions 19 - 20. Currently, the spot exchange rate is USD/AUD = 0,85, and the one-year forward exchange rate is USD/AUD = One-year risk-free interest rate is 5.5 % in Australia and 3.2% in the United States. You are the U.S. investor ev whether there is an opportunity for a covered interest rate arbitrage. You may borrow up to 1,000,000 USD or AUD. Compute the risk-free arbitrage profit. O 85,058 USD O 45, 058 USD

The following information is the same for Questions 19 - 20. Currently, the spot exchange rate is USD/AUD = 0,85, and the one-year forward exchange rate is USD/AUD = One-year risk-free interest rate is 5.5 % in Australia and 3.2% in the United States. You are the U.S. investor ev whether there is an opportunity for a covered interest rate arbitrage. You may borrow up to 1,000,000 USD or AUD. Compute the risk-free arbitrage profit. O 85,058 USD O 45, 058 USD

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The following information is the same for Questions 19 - 20. Currently, the spot exchange rate is USD/AUD = 0.85, and the one-year forward exchange rate is USD/AUD = 0.90. One-year risk-free interest rate is 5.5 % in Australia and 3.2% in the United States. You are the U.S. investor evaluating whether there is an opportunity for a covered interest rate arbitrage. You may borrow up to 1,000,000 USD or 1,176,470 AUD. Compute the risk-free arbitrage profit. 85,058 USD 45, 058 USD 38 USD 68,563 USD
Transcribed Image Text:The following information is the same for Questions 19 - 20. Currently, the spot exchange rate is USD/AUD = 0.85, and the one-year forward exchange rate is USD/AUD = 0.90. One-year risk-free interest rate is 5.5 % in Australia and 3.2% in the United States. You are the U.S. investor evaluating whether there is an opportunity for a covered interest rate arbitrage. You may borrow up to 1,000,000 USD or 1,176,470 AUD. Compute the risk-free arbitrage profit. 85,058 USD 45, 058 USD 38 USD 68,563 USD
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