Question
The 1-year interest rate in Australian and U.S. are 3% and 2% (continous compounding) respectively. The spot exchange rate is 1.30 AUD per USD. a).
The 1-year interest rate in Australian and U.S. are 3% and 2% (continous compounding) respectively. The spot exchange rate is 1.30 AUD per USD.
a). what is the 3 month forward exchange rate that exclude arbitrage opportunities?
b). Suppose 3 month forward exchange rate is 1.40 AUD per USD. Explain in detail jow to generate 600 USD arbitrage profit (small rounding error is allowed) at the end of 3 months.
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Financial Reporting And Statement Analysis A Strategic Perspective
Authors: Clyde P. Stickney, Paul Brown
4th Edition
0030238110, 978-0030238116
