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Please show the work to solve this problem the correct answer is A. I having trouble solving thank you. Suppose that 1-year, 2-year, and 3-year
Please show the work to solve this problem the correct answer is A. I having trouble solving thank you.
Suppose that 1-year, 2-year, and 3-year forward prices for the Australian dollar are $1.05/A$, $0.98/A$, and $0.83/A$, respectively. The 1-year, 2-year, and 3-year effective annual interest rates in the U.S. are 5.8%, 6.6%, and 6.8%. What is the fixed exchange rate in a 3-year Australian dollar swap? (In other words, what 3-year U.S. dollar annuity is equivalent to a 3-year annuity of A$1?)
a. $0.96
b. $0.85
c. $1.12
d. $1.03
e. $0.92
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