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Determine the profit or loss from decision

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Reference no: EM131542005

An Australian company is considering a three month short-term investment of 10,000AUD in either Australia or Switzerland. The following information is available

Initial spot exchange rate  (AUD/CHF)       1.0775-1.0825

Australian three month LIBOR rate            4.75-5.25% p.a.

Swiss three month LIBOR rate                  2.25-2.75% p.a.

Australian lending/borrowing spread         +1.5%p.a.

Swiss lending/borrowing spread               +0.5%p.a.

Required:

(a) If the ending spot exchange rate (AUD/CHF) is expected to be 1.0875-1.0925, which financing option should be taken.

(b) If the ending spot exchange rate turned out to be (AUD/CHF) 1.0675-1.0725, would your decision have been profitable.

(c) Determine the profit or loss from your decision.

Reference no: EM131542005

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