Question 4 (total of 10 marks): An investor has some Australian and Bangladeshi assets and liabilities as follows:

• AUD 800,000 Australian house asset.
• AUD 650,000 mortgage loan liability.
• AUD 30,000 owing on her credit card.
• BDT 12,000,000 Bangladeshi apartment asset thats owned outright with no mortgage. Note the apartment is denominated in Bangladeshi Taka (BDT), not Australian Dollars (AUD).
• The current exchange rate is 85 BDT per USD. Note that this exchange rate is not per AUD. Its in BDT per USD.
• The current exchange rate is 0.7 USD per AUD.

Give your answer as a decimal correct to at least 6 decimal places. So for example if your answer is 1.23456789%, write 0.0123456789. If your answer is 400,000, write 400000. Do not use percentages and do not write units (m or k) after the number.

Question 4a (2 marks): What is the investors net wealth? State your answer in AUD to the nearest dollar. So if your answer is 1,234,567.891, write 1234568. Dont include the AUD currency or $ sign, just write the number. Do not include comma in the answer.

Answers: Answer

Question 4b (2 marks): What is the weight of the asset class real estate in the investors net wealth? Give your answer as a decimal thats correct to 6 decimal places or more. So for example if your answer is 1.23456789%, you can write 0.0123456789.

Answers: Answer

Question 4c (2 marks): What new BDT per AUD exchange rate would cause the investors wealth to be AUD400,000? Assume that the shares remain the same value in BDT.

State your final answer in BDT per AUD. For example, if you thought the answer was 60 BDT per AUD, write 60. Give your answer as a decimal thats correct to 6 decimal places or more. So for example if your answer is 60.23456789, note it down just like that without the currency symbols.

Answers: Answer

Question 4di (2 marks): The investor currently has her AUD 10,000 spare cash invested in 2% pa term deposits in an Australian bank in AUD.

She notices that Bangladeshi banks pay 8% pa term deposit rates on BDT.

Both Australian and Bangladeshi banks have floating exchange rates and no capital controls.

She is considering converting her AUD10,000 to BDT now, investing in BDT term deposits, and then converting the BDT back to AUD in one year.

Calculate the 1 year forward BDT per AUD cross rate assuming that the principal of cross-currency interest rate parity holds.

State your final answer in BDT per AUD. For example, if you thought the answer was 60 BDT per AUD, write 60. Give your answer as a decimal thats correct to 6 decimal places or more. So for example if your answer is 60.23456789, note it down just like that without the currency symbols.

Answers: Answer BDT per AUD

Question 4dii (2 marks): If you convert the AUD10,000 into BDT, invest it at a Bangladeshi banks term deposit rate and convert back to AUD in one year, will the NPV definitely be zero or is it expected to be zero and you could actually make or lose money? Assume that cross currency interest rate parity holds.

Answer: Answer