1) You have $100,000 to invest 2The current ask quote for Australian dollars (A$
ID: 2621064 • Letter: 1
Question
1) You have $100,000 to invest 2The current ask quote for Australian dollars (A$) in the spot market is So.71 3) The current bid quote for Australian dollars (A$) in the spot market is $o.7o ) The one-year forward rate (ask) for A$ is $o.71 5) The one year forward rate (bid) for A$ is $o.70 6) The one-year U.S. interest rate is 7% 7) The one-year Australian interest rate is 9%. If you conduct covered interest arbitrage, what U.S. dollar amount will you have after one year? O a. $110,557.10 b. $107,464.80 c. $105,493.00 O d. $153,521.10 e. None of these choices are correct.Explanation / Answer
a. amount in AUD to invest = 100,000/0.71
amount in AUD in one year = 100,000/0.71 * 1.09
amount in USD in one year = 100,000/0.71 * 1.09 * 0.70 = 107,464.80
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