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Compute the no-arbitrage one-year forward exchange rate

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Reference no: EM132523049

The one year interest rate in Australia is currently 0.5% while that in the US is currently 1.5%. The spot exchange rate is currently 0.6506 US Dollars per Australian Dollar.

Question 1: Compute the no-arbitrage one-year forward exchange rate, explaining each of the steps in your derivation. Devise an arbitrage strategy that will deliver you a profit if the one-year forward rate in the market is 0.6700 US dollars per Australian dollar and compute the profit.

Reference no: EM132523049

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