Today, AUD/JPY spot is trading at 67.5600-67.6800. At a 270-day investment horizon, the AUD interest rate is 4.60% and the JPY interest rate is 0.90%.

Part 1: Compute the so-called no-arbitrage bounds for the forward rate that the spot rate implies (HINT: use spot bid and ask separately to compute one forward rate each).

Lower bound: $

Upper bound: $

Part 2: A FX dealer has not updated their quote for the corresponding AUD/JPY forward rate in a while, at 65.9900-66.1400.

Does this represent an arbitrage opportunity? (Click to select) YES NO Not enough information

Why is this or is this not an arbitrage opportunity?

• bid price of the forward is above the upper bound.

• bid price of the forward is inside the bounds.

• ask price of the forward is above the upper bound.

• ask price of the forward is below the lower bound.

• ask price of the forward is inside the bounds.

• bid price of the forward is below the lower bound.

How would you take advantage of this?

• Buy spot, sell forward, borrow terms currency, invest in base currency

• Sell spot, buy forward, borrow terms currency, invest in base currency

• None of these strategies will result in profits.

• Sell spot, buy forward, borrow base currency, invest in terms currency

• Buy spot, sell forward, borrow base currency, invest in terms currency

Today, AUD/JPY spot is trading at 67.5600-67.6800. At a 270-day investment horizon, the AUD interest rate is 4.60% and the JPY interest rate is 0.90%. Part 1: Compute the so-called no-arbitrage bounds for the forward rate that the spot rate implies (HINT: use spot bid and ask separately to compute one forward rate each). Lower bound: $ Upper bound: $ Part 2: A FX dealer has not updated their quote for the corresponding AUD JPY forward rate in a while, at 65.9900-66.1400. Does this represent an arbitrage opportunity? (Click to select) Why is this or is this not an arbitrage opportunity? Obid price of the forward is above the upper bound. Obid price of the forward is inside the bounds. O ask price of the forward is above the upper bound. ask price of the forward is below the lower bound. ask price of the forward is inside the bounds. Obid price of the forward is below the lower bound. How would you take advantage of this? Buy spot, sell forward, borrow terms currency, invest in base currency O Sell spot, buy forward, borrow terms currency, invest in base currency O None of these strategies will result in profits. O Sell spot, buy forward, borrow base currency, invest in terms currency Buy spot, sell forward, borrow base currency, invest in terms currency