18. To celebrate the removal of travel restrictions, you decide to take a long overseas holiday to the US. You will trav

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18.
To celebrate the removal of travel restrictions, you decide to take a long overseas holiday to the US. You will travel around the US for 202 days. To fund your overseas trip, you decide to invest some money.

You can invest in Australia, where annualised 202-day interest rates are currently 3.99%. Alternatively, you can convert your Australian dollars into USD at a current spot rate of AUD0.8311/USD and invest at an annualised 202-day interest rate of 7.66% in the US.

If interest rate parity holds, what is the annualised forward premium or discount that the USD should trade at (relative to the Australian dollar) in the 202-day forward market?

Assume one year equals 360 days.


a.
-3.52%

b.
3.59%

c.
-1.98%

d.
2.01%

e.
-2.93%