Question
Assume the following information: Quoted Price Spot rate of Australian dollar USD.855/AUD 180-day forward rate of Australian dollar USD.839/AUD 180-day Australian interest rate (a periodic
Assume the following information:
Quoted Price
Spot rate of Australian dollar USD.855/AUD
180-day forward rate of Australian dollar USD.839/AUD
180-day Australian interest rate (a periodic rate) 3.0%
180-day U.S. interest rate (a periodic rate) 4.4%
A. What % ROR can a US investor earn if they attempt covered interest arbitrage?
B. What % ROR can an Australian investor earn if they attempt covered interest arbitrage?
C. Given this information, who has a covered interest arbitrage opportunity? Answer either Australian investors or U.S. investors.
D. What changes in the 4 quoted prices above would likely occur to eliminate any further possibilities of covered interest arbitrage? ( answer with just or )
Spot rate of Australian dollar
180-day forward rate of Australian dollar
180-day Australian interest rate (a periodic rate)
180-day U.S. interest rate (a periodic rate)
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