Chapter 10, Problem 1IEE

On April 10, the annualized six-month Aussie dollar rate in the Sydney market was 2.98％, the annualized six-month US dollar rate in the New York market was 0.32％, the spot exchange rate was $1=A$1.0689～1.0699, the six-month forward premium was 40~ 50, and a US bank borrowed 1 million US dollar to do the interest rate arbitrage. What will be the result of the transaction? please give your answer in intergers (unit: US dollars)

North Bank has been borrowing in the U.S. markets and lending abroad, thus incurring foreign exchange risk. In a recent transaction, it issued a one-year $2 million CD at 6 percent and funded a loan in euros at 8 percent. The spot rate for the euro was €1.45/$ at the time of the transaction (US being the home country). a. Information received immediately after the transaction closing indicated that the euro will depreciate to €1.47/$ by year-end. If the information is correct, what will be the realized spread on the loan? What should have been the bank interest rate on the loan to maintain the 2 percent spread? Assume adjustments in principal value are included in the spread. b. The bank had an opportunity to sell one-year forward marks at €1.46. What would have been the spread on the loan if the bank had hedged forward its foreign exchange exposure? c. What is interest rate parity theory and calculate that at what forward exchange rate of dollars per euro, an investor in USA would…

If the interest rate in USD is 1%, and is 1.2% for Canadian Dollar deposits, find the forward price of a Canadian Dollar when the current exchange rate is 1.1, and expiration is three years from signing? b) If the Forward price of a Canadian dollar is currently 1.2, how could you use the synthetic to do arbitrage?