Question
You are given the following information: Spot exchange rate (AUD/USD) 0.9313 0.9321 Three-month forward rate (AUD/USD) 0.9412 0.9420 Australian three-month interest rate 5 - 5.5%
You are given the following information:
| Spot exchange rate (AUD/USD) | 0.9313 0.9321 |
| Three-month forward rate (AUD/USD) | 0.9412 0.9420 |
| Australian three-month interest rate | 5 - 5.5% pa |
| U.S. three-month interest rate | 1.5 - 2% pa |
Is there an arbitrage opportunity from borrowing 10,000 USD and investing it in Australia over 3 months? Calculate the profit/loss made. (to the nearest dollar)
| Loss of 40 USD | ||
| Loss of 31 USD | ||
| Gain of 190 USD | ||
| Gain of 181 USD |
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Building Financial Models
Authors: John Tjia
2nd Edition
0071608893, 978-0071608893
