Exchange rate for usd-aud under interest rate parity

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Reference no: EM132058702

The U.S. dollar (USD) deposit interest rate is 1%, while Australia's (AUD) rate is 3.5%, with a 1.5000 USD/AUD exchange rate.

• What should be the 1-year forward exchange rate for USD/AUD under Interest Rate Parity?

• The annual interest rate in the AUS and UK are 5% and 8% respectively. The current spot rate is $1.50/£ and the 1 year forward rate is $1.48/£.

• Can arbitrage profits be made from the above situation?

Reference no: EM132058702

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