a) According to Interest Rate Parity, if the Interest rate is 6% in France and 8% in Australia. What would we expect to see to happen to the value of the Euro relative to AUD? (Choose the most appropriate answer.) (1 Mark)

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b) If the spot rate for AUD/USD is 0.96 and the annual interest rate is 8% in Australia and 4% in the USA what is the fair price to pay for a 3-month (90 day) AUD/USD Forward contract purchased today? (2 Marks) Answer as a decimal to 4 decimal places.

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c) If the spot rate for CAD/AUD is 0.8000 and the annual interest rate is 3% in Canada and 4% in Australia is there an arbitrage opportunity? (Choose the most appropriate answer.) (1 Mark)

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d) According to Interest Rate Parity, if the interest rate decreases in one country relative to another, we expect the exchange rate of that country to: (Choose the most appropriate answer.) (1 Mark)

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