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Suppose that one-year interest rates in the U.S. is 2.00% and one-year interest rates in Australia is 5.10% on January 1st, 2009. The exchange rates
Suppose that one-year interest rates in the U.S. is 2.00% and one-year interest rates in Australia is 5.10% on January 1st, 2009. The exchange rates between the U.S. dollar ($) and the Australian dollar (A$) are $0.5844/A$ on January 1st, 2009 and $0.7277/A$ on December 31st, 2009. If you conduct currency carry trade by borrowing $1 million and converting to Australian dollars on January 1st, 2009, and subsequently investing in Australian dollar for one year. On December 31st, 2009, you convert your Australian investment back to the US dollars. Calculate the total dollar profit of carry trades in 2009. Please show your calculation
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