You want to invest $1,000,000 for 90 days. Assume you can invest at 5% per annum in Australia and at 2% per annum in the United States. The current spot rate is AUD/USD 1.50 and the 90-day forward rate is AUD/USD 1.5012.

a) Would you invest in Australia or in the United States?

b) Does covered interest parity hold?

c) Compute the 90-day no-arbitrage forward rate for the U.S. dollar against the Australian dollar (AUD/USD).

d) Compare the 90-day no-arbitrage forward rate above with the actual forward rate. Would you buy or sell U.S. dollars in the forward market for 90 day delivery?