(a) Given spot exchange rate, what is the "right" 2-year forward exchange rate? (b) Is there arbitrage opportunity? If yes, please specify the detailed arbitrage strategy.
(a) Given spot exchange rate, what is the "right" 2-year forward exchange rate? (b) Is there arbitrage opportunity? If yes, please specify the detailed arbitrage strategy.
Chapter20: Short-term Financing
Section: Chapter Questions
Problem 4ST
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Question
![6. The 2-year interest rates in Australia and the U.S. are 7% and 5%. The spot exchange
rate between the Australian dollar (AUD) and the US dollar (USD) is 0.6200 USD per
AUD, and 2-year forward exchange rate is 0.6300.
(3%) (a) Given spot exchange rate, what is the "right" 2-year forward exchange rate?
(5%) (b) Is there arbitrage opportunity? If yes, please specify the detailed arbitrage strategy.
Please
1
0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F140ca7f5-8fe8-44b6-9d8c-6fd12a20ba54%2F83e928eb-8306-4ce9-8139-3d46f75b2c4d%2Fvhy0p7k_processed.jpeg&w=3840&q=75)
Transcribed Image Text:6. The 2-year interest rates in Australia and the U.S. are 7% and 5%. The spot exchange
rate between the Australian dollar (AUD) and the US dollar (USD) is 0.6200 USD per
AUD, and 2-year forward exchange rate is 0.6300.
(3%) (a) Given spot exchange rate, what is the "right" 2-year forward exchange rate?
(5%) (b) Is there arbitrage opportunity? If yes, please specify the detailed arbitrage strategy.
Please
1
0
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