Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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.
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- a)explain how to price a currency swap if either set of payments is at a floating rate. b)explain how a currency swap can be used to convert a loan in one currency into a loan in another currency, and provide some reasons for doing so. c)demonstrate that a currency swap contract is equivalent to a series of forward contracts. d)explain how a currency swap can be used to hedge a stream of foreign cash flows. e)define interest rate derivatives, and compare and contrast them against bond derivatives.arrow_forwardA foreign currency futures contract is a commitment to exchange certain amount of currencies in a specified exchange rate at a specified time in the future. Select one: True Falsearrow_forward
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