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Use the following forward bid-ask, and interest rates for of AUD and USD, Spot rate in AUD/USD: 1.2010-16 180-day forward swap rate in AUD/USD: 221-223
Use the following forward bid-ask, and interest rates for of AUD and USD,
Spot rate in AUD/USD: 1.2010-16
180-day forward swap rate in AUD/USD: 221-223
The annual interest rates for AUD (lending or borrowing): 4%, 5%; for USD: 2%, 3%
Assume a year has 360 days, to answer:
- Find the mid rates of these rates and use PPP to explain if:
- the 180 days forward rate > expected 180 days spot rate
- an investor can make profit by investing or borrowing USD
- Use the spreads in the forward rates, spot rates, and interest rates to justify if:
- an investor can make profit by investing or borrowing USD
- an investor can make profit by investing or borrowing AUD
- Which one should be the major reason for an investor can't earn a profit?
- Choose one: liquidity is too low, fees are too high, cost of transaction is high, currencies are fairly priced
Please show the working, thank you.
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