Question 4 (total of 10 marks): David has some Australian and Indian assets and liabilities as follows: AUD 800,000 apartment which is partly financed with a loan. AUD 600,000 mortgage loan. AUD 40,000 in her deposit account at the bank. INR 1,200,000 in Indian shares. Note the shares are denominated in Indian Rupees (INR), not Australian Dollars (AUD). The current exchange rate is 0.72 USD = 1 AUD. The current exchange rate is 68 INR = 1 USD. Provide answers as decimals rounded to 6 decimal places. For example, if your answer is 0.23456789, write it as 0.234568. Question 4a (2 marks): What is David's net wealth? State your answer in AUD. Don't include the AUD currency or $ sign, just write the number. Answers: Question 4b (2 marks): What is the weight of the asset class real estate in David's net wealth? Answers: Question 4c (2 marks): What is the weight of the asset class debt in David's net wealth? Remember that all things that have characteristics of debt should be included in the asset class debt. Answers: Question 4d (2 marks): What new INR per AUD exchange rate would cause David's net wealth to be AUD 260,000? Assume that the shares remain the same value in INR. State your final answer in INR per AUD. For example, if you thought the answer was 60 INR per AUD, write 60. Give your answer as a decimal that's correct to 6 decimal places. So, for example if your answer is 60.23456789, write it as 60.234568. Answers: Question 4e (2 marks): David currently has his AUD 6,000 spare cash invested in 2% pa term deposits in an Australian bank in AUD. He notices that Indian banks pay 5% pa term deposit rates on INR. Both Australian and India have floating exchange rates and no capital controls. He is considering converting his AUD6,000 to INR now, investing in INR term deposits, and then converting the INR back to AUD in one year. Calculate the 1 year forward INR per AUD cross rate, assuming that the principal of cross-currency interest rate parity holds. State your final answer in INR per AUD. For example, if you thought the answer was 50 INR per AUD, write 50. Give your answer as a decimal that's correct to 6 decimal places. So, for example if your answer is 50.23456789, write it as 50.234568. Answers: Question 4f (2 marks): What's the NPV of converting the AUD6,000 into INR, investing it at an Indian bank's term deposit rate and converting back to AUD in one year? Again, assume that cross currency interest rate parity holds. Only write numbers in the cell below. Answers: Question 4 (total of 10 marks): David has some Australian and Indian assets and liabilities as follows: AUD 800,000 apartment which is partly financed with a loan. AUD 600,000 mortgage loan. AUD 40,000 in her deposit account at the bank. INR 1,200,000 in Indian shares. Note the shares are denominated in Indian Rupees (INR), not Australian Dollars (AUD). The current exchange rate is 0.72 USD = 1 AUD. The current exchange rate is 68 INR = 1 USD. Provide answers as decimals rounded to 6 decimal places. For example, if your answer is 0.23456789, write it as 0.234568. Question 4a (2 marks): What is David's net wealth? State your answer in AUD. Don't include the AUD currency or $ sign, just write the number. Answers: Question 4b (2 marks): What is the weight of the asset class real estate in David's net wealth? Answers: Question 4c (2 marks): What is the weight of the asset class debt in David's net wealth? Remember that all things that have characteristics of debt should be included in the asset class debt. Answers: Question 4d (2 marks): What new INR per AUD exchange rate would cause David's net wealth to be AUD 260,000? Assume that the shares remain the same value in INR. State your final answer in INR per AUD. For example, if you thought the answer was 60 INR per AUD, write 60. Give your answer as a decimal that's correct to 6 decimal places. So, for example if your answer is 60.23456789, write it as 60.234568. Answers: Question 4e (2 marks): David currently has his AUD 6,000 spare cash invested in 2% pa term deposits in an Australian bank in AUD. He notices that Indian banks pay 5% pa term deposit rates on INR. Both Australian and India have floating exchange rates and no capital controls. He is considering converting his AUD6,000 to INR now, investing in INR term deposits, and then converting the INR back to AUD in one year. Calculate the 1 year forward INR per AUD cross rate, assuming that the principal of cross-currency interest rate parity holds. State your final answer in INR per AUD. For example, if you thought the answer was 50 INR per AUD, write 50. Give your answer as a decimal that's correct to 6 decimal places. So, for example if your answer is 50.23456789, write it as 50.234568. Answers: Question 4f (2 marks): What's the NPV of converting the AUD6,000 into INR, investing it at an Indian bank's term deposit rate and converting back to AUD in one year? Again, assume that cross currency interest rate parity holds. Only write numbers in the cell below. Answers
