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

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 2P: The nominal yield on 6-month T-bills is 7%, while default-free Japanese bonds that mature in 6...

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Concept explainers

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.

Question

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)

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