The following is information on interest-rates and exchange rates for Australia and the U.K. being quoted by ANZ bank (assume there are no bid-ask spreads, for simplicity). The spot exchange rate for the number of AUD (Australian dollars) per GBP (British pound) is 1.8005. The annualized 6 month interest-rate in Australia (respectively, the U.K.) is 10% (respectively, 8%). Using the formula given in class, what is the 6 month forward exchange rate (consistent with no arbitrage) expressed as the number of AUD per GBP? Assume 6 months is exactly 0.5 years. Give your answer to 4 decimal places (because Canvas only accepts 4 decimal places).

The following is information on interest-rates and exchange rates for Australia and the U.K. being quoted by ANZ bank (assume there are no bid-ask spreads, for simplicity). The spot exchange rate for the number of AUD (Australian dollars) per GBP (British pound) is 1.8005. The annualized 6 month interest-rate in Australia (respectively, the U.K.) is 10% (respectively, 8%). Using the formula given in class, what is the 6 month forward exchange rate (consistent with no arbitrage) expressed as the number of AUD per GBP? Assume 6 months is exactly 0.5 years. Give your answer to 4 decimal places (because Canvas only accepts 4 decimal places).

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 4ST

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You are given the following information:Spot exchange rate (AUD/EUR) 1.60One-year forward rate (AUD/EUR) 1.62One-year interest rate on the Australian dollar 8.5%One-year interest rate on the euro 6.5%(a) Is there any violation of CIP?(b) Calculate the covered margin (going short on the AUD).(c) Calculate the interest parity forward rate and compare it with the actual forward rate.
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