Conduct covered interest arbitrage

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Reference no: EM131837492

1) You have $100,000 to invest

2) The current ask quote for Australian dollars (A$) in the spot market is $0.71

3) The current bid quote for Australian dollars (A$) in the spot market is $0.70

4) The one-year forward rate (ask) for A$ is $0.71

5) The one year forward rate (bid) for A$ is $0.70

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?

a. $107,464.80

b. $110,557.10

c. $153,521.10

d. $105,493.00

e. None of these choices are correct.

Reference no: EM131837492

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