In alternative universe, the Australian government has decided to enter into a target-zone arrangement with the United States. Australian firm Cockatoo has a USD 180,000 payable due in 180 days. Assuming the current exchange rate is AUD1.5/USD, the central rate for the AUD/USD is set at 1.55 AUD per USD, and the currencies are allowed to fluctuate with a 11% band on either side, what is the maximum possible amount (in terms of AUD) that Cockatoo could lose due to changes in the future exchange rate? O a. 141096.77 O b. 29700.00 O c. 39690.00 O d. 33075.00 O e. 30690.00
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- Currently, the spot exchange rate is $0.84 per A$ and the one-year forward exchange rate is $0.80 per A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,190,476, which is equivalent to $1,000,000 at the current spot rate. Required: Determine if IRP is holding between Australia and the United States. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. What will be your arbitrage profit? Explain how IRP will be restored as a result of arbitrage transactions you carry out above.Currently, the spot exchange rate is $1.59 per £ and the three-month forward exchange rate is $1.61 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,590,000 or £1,000,000. Required: Determine whether the interest rate parity is currently holding. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Explain how the IRP will be restored as a result of covered arbitrage activities.In alternative universe, the Australian government has decided to enter into a target-zone arrangement with the United States. Australian firm K-Roo has a USD 150,000 payable due in 180 days. Assuming the current exchange rate is AUD1.44/USD, the central rate for the USD/AUD is set at 0.5 USD per AUD, and the currencies are allowed to fluctuate with a 10% band on either side, what is the maximum possible amount (in terms of AUD) that K-Roo could lose due to changes in the future exchange rate? Select one: a. 114000.00 b. 101416.67 c. 133500.00 d. 21600.00 e. -54000.00
- Currently, the spot exchange rate is $0.80/A$ and the one-year forward exchange rate is $0.76/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,250,000, which is equivalent to $1,000,000 at the current spot rate. Determine if IRP is holding between Australia and the United States. Yes O NoThe annual interest rate in Canada is 1.5%, the comparable rate in Europe is 1% and the spot rate for the EUR is CAD 1.4390 /EUR.a.) If covered interest parity holds, what should be the 90 day forward rate?b.) Now assume a Canadian importer is expecting a shipment of goods worth EUR 30 million from France in 90 days which he needs to pay for in EUR and he wants to hedge his exchange rate exposure by using a forward contract. What will be his cost in CAD if he uses a forward contract to hedge is exposure? How much does he lose/gain if the spot rate would rise to CAD 1.4525 /EUR respectively fall to CAD 1.4275 /EUR in the case with the hedge compared to if he just would have waited and purchased the EUR at the then prevailing spot rate? Please state the hypotheticalgains/losses in CAD.c.) What could potentially be the largest loss (expressed in CAD) he could make with the forward contract if the exchange rate could move to very extreme values during this period?A New Zealand company will receive a payment in USD in one year. It wants to hedge its exchange rate risk exposure. It will do this by entering into a currency forward contract to buy NZD in exchange for USD in one year. Use this information to help answer the questions that follow. (a) The current spot exchange rate for the New Zealand dollar per US dollar (NZD/USD) is 1.5836. The one-year risk-free rates are 2.0% for the New Zealand dollar and 3.5% for the US dollar. According to CIP, the no-arbitrage one-year NZD/USD forward exchange rate is closet to: Select alternative ✓ (b) Suppose that the company decides to wait a few more weeks before hedging. It then enters into a currency forward contract to buy NZD in exchange for USD at a rate of 1.5502 NZD per USD. A year later, when the company receives the USD payment, the spot NZD/USD exchange rate is 1.6123. In this case, the company would have been Select alternative if it had not hedged.
- If the Australian/US dollar exchange rate is 0.72 USD/AUD, US interest rates are 0.25% and Australian interest rates are 0.75% (both for 1 year), what should the 1-year forward USD/AUD exchange rate be?Currently, the spot exchange rate is $1.51 per £ and the three-month forward exchange rate is $1.53 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,510,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Note: Do not round intermediate calculations. Interest arbitrage Arbitrage profit Borrow in the U.S. and invest in the U.K. Hedge exchange rate risk by selling British pounds forward. < Required A Required CBlur Ltd, a UK importer, expects to make a payment of 1.8m Australian dollars (A$) for sure in one year from now. Blur will need to pay for the A$ currency in sterling (£). Assume that the Australian dollar’s spot exchange rate now is A$=£0.56, the one-year forward rate is A$=£0.59, and the discount rate is zero. Blur may need to pay an additional A$3.1m one year from now if it agrees a deal with a new Australian supplier, also payable in one year from now. The probability of this deal being agreed is 0.5. If the deal is not agreed (probability 0.5), Blur makes no payment to the new supplier. Suppose for parts (a) and (b) that the spot rate in one year is A$=£0.58. Assume Blur chooses to enter into a forward exchange contract for the maximum possible payment of A$4.9m. What actions will the firm take and what will be the value of its net payments in £, if in one year: the new deal is agreed? the new deal is not agreed? What will be the expected value of Blur’s net payment in…
- Currently, the spot exchange rate is CHF 0.89/$ and the three-month forward exchange rate is CHF 0.86/$. The three-month interest rate is 5.6% per annum in the U.S. and 4.0% per annum in Switzerland. Assume that you can borrow as much as $1,120,000 or CHF 1,000,000. Determine whether the interest rate parity is currently holding. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. Explain how the IRP will be restored as a result of covered arbitrage activities.Currently, the spot exchange rate is $1.67 per £ and the three-month forward exchange rate is $1.69 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,670,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine whether the interest rate parity is currently holding. Determine whether the interest rate parity is currently holding.Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The three-month interest rate is 5.84% per annum in the U.S. and 5.84% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. If the IRP is not holding, determine the arbitrage profit in British Pound. Otherwise input your answer as 0 PS: Please input your answer without any currency information.