Question 4 (total of 12 marks): Tom has some Australian, US and Chinese assets and liabilities as follows:

• AUD 600,000 house which is partly financed with a loan.
• AUD 350,000 mortgage loan.
• AUD 80,000 in his deposit account at the bank.
• USD 150,000 in American shares. The current exchange rate is 0.73 USD = 1 AUD.
• RMB 260,000 in Chinese shares. The current exchange rate is 7.2 RMB = 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 Tom's net wealth? State your answer in AUD. Dont include the AUD currency or $ sign, just write the number.

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Question 4b (2 marks): What is the weight of the asset class real estate in Tom's net wealth?

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Question 4c (2 marks): What is the weight of the asset class debt in Toms net wealth? Remember that all things that have characteristics of debt should be included in the asset class debt.

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Question 4d (2 marks): What is the weight of the asset class shares in Tom's net wealth?

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Question 4e (2 marks): What new USD per AUD exchange rate would cause Toms American and Chinese shares to be worth AUD 300,000? Assume that the RMB stays fixed against the USD (but not against the AUD) and that shares remain the same value in USD or RMB. State your final answer in USD per AUD. For example, if you thought the answer was 0.6 USD per AUD, write 0.6. Give your answer as a decimal thats correct to 6 decimal places. So, for example if your answer is 0.623456789, write it as 0.623457.

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Question 4f (2 marks): Tom currently has his AUD 8,000 spare cash invested in 2% pa term deposits in an Australian bank in AUD.

He notices that Chinese banks pay 4% pa term deposit rates on RMB.

Both Australian and Chinese have floating exchange rates and no capital controls.

He is considering converting his AUD8,000 to RMB now, investing in RMB term deposits, and then converting the RMB back to AUD in one year.

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

State your final answer in RMB per AUD. For example, if you thought the answer was 5 RMB per AUD, write 5. Give your answer as a decimal thats correct to 6 decimal places. So, for example if your answer is 5.23456789, write it as 5.234568.

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