Your Australian friend is a foreign exchange student in Paris, France. Because of the travel restrictions in place, she
Posted: Sat Mar 19, 2022 5:56 pm
Your Australian friend
is a foreign exchange student in Paris, France. Because of the
travel restrictions in place, she is unable to return to Australia.
To fund her accommodation and living expenses in Europe, she
decides to invest some money for 244 days.
She can invest in
Australia, where annualised 244-day interest rates are currently
3.08%. Alternatively, she can convert her Australian dollars into
EUR at a current spot rate of AUD0.8727/EUR and invest at an
annualised 244-day interest rate of 7.27% in Europe.
If interest rate
parity holds, what is the annualised forward premium or discount
that the Euro should trade at (relative to the Australian dollar)
in the 244-day forward market?
Assume one year equals
360 days.
a.
-3.99%
b.
4.10%
c.
-2.71%
d.
2.78%
e.
-3.48%
is a foreign exchange student in Paris, France. Because of the
travel restrictions in place, she is unable to return to Australia.
To fund her accommodation and living expenses in Europe, she
decides to invest some money for 244 days.
She can invest in
Australia, where annualised 244-day interest rates are currently
3.08%. Alternatively, she can convert her Australian dollars into
EUR at a current spot rate of AUD0.8727/EUR and invest at an
annualised 244-day interest rate of 7.27% in Europe.
If interest rate
parity holds, what is the annualised forward premium or discount
that the Euro should trade at (relative to the Australian dollar)
in the 244-day forward market?
Assume one year equals
360 days.
a.
-3.99%
b.
4.10%
c.
-2.71%
d.
2.78%
e.
-3.48%