Suppose that the 2-year interest rates in Australia and the US are 3% and 1%, respectively. The spot exchange rate is 0.98 USD (domestic) per AUD (foreign). The 2-year forward exchange rate should be _0=0.98^(1%3%)=0.9416 Explain what kind of strategies can be made to have risk less profit if _0 is less or greater than 0.9416.

Case 1: _0=0.92.

Case 2: _0=0.95

Suppose that the 2-year interest rates in Australia and the US are 3% and 1%, respectively. The spot exchange rate is 0.98 USD (domestic) per AUD (foreign). The 2-year forward exchange rate should be F_0=0.98e^(1%-3%)=0.9416 Explain what kind of strategies can be made to have riskless profit if F_0 is less or greater than 0.9416. Case 1: F 0=0.92. Case 2: F_0=0.95. Suppose that the 2-year interest rates in Australia and the US are 3% and 1%, respectively. The spot exchange rate is 0.98 USD (domestic) per AUD (foreign). The 2-year forward exchange rate should be F_0=0.98e^(1%-3%)=0.9416 Explain what kind of strategies can be made to have riskless profit if F_0 is less or greater than 0.9416. Case 1: F 0=0.92. Case 2: F_0=0.95