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Question 22 (12 marks) Suppose the current 12-month interest rates of US dollar and Australian dollar are 0.5% p.a. and 1.5% p.a. respectively. The exchange

Question 22 (12 marks) Suppose the current 12-month interest rates of US dollar and Australian dollar are 0.5% p.a. and 1.5% p.a. respectively. The exchange rate in the spot market is 0.7120 (1.e. 1 AUD buys 0.7120 USD). Answer the following questions from the perspective of Australian investors. a) What is the interest rate differential between Australia and the US? What is the 12-month no-arbitrage forward exchange rate, rounded to 4 decimal places? (2 marks) 7 BI c? ! Question 22 (12 marks) Suppose the current 12-month interest rates of US dollar and Australian dollar are 0.5% p.a. and 1.5% p.a. respectively. The exchange rate in the spot market is 0.7120 (1.e. 1 AUD buys 0.7120 USD). Answer the following questions from the perspective of Australian investors. a) What is the interest rate differential between Australia and the US? What is the 12-month no-arbitrage forward exchange rate, rounded to 4 decimal places? (2 marks) 7 BI c

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