A trader, who is considering uncovered interest arbitrage between the US dollar (USD) and Australian dollar (AUD), faces the following data: Funds available: Spot exchange rate: Spot exchange rate one year ago USD 3-month interest rate: AUD 3-month interest rate: 2 million USD 0.94 AUD per USD 1.00 AUD per USD 0.12% per annum 4.69% per annum (1) Calculate the profit that would be made if the exchange rate remains at its current level in three months' time; Borrow USD 2,000,000 for 3 months. USD to repay after 3 months = 2,000,000 (1 + (0.12% * (3/12))) = USD 2,00,600 Convert the borrowed USD into AUD at the spot exchange rate. AUD received = 2,000,000 * 0.94 = AUD 1,880,000 Invest the AUD for 3 months. AUD received after 3 months = 1,880,000 (1 + (4.69% (3/12))) = AUD 1,902,043 After 3 months convert the AUD back into USD. USD received = 1,902,043/0.94 USD 2,023,450 Profit = USD received after 3 months - USD to repay after 3 months Profit = 2,023,450 - 2,000,6000 Profit - USD 22,850 (2) How would the profit figure change if the Australian dollar continues to strengthen at the same rate as it has done over the past year