1. US0.4912/BR 2. BR2.0358/US
2. Did the Australian Dollar appreciate or depreciate against the US dollar from Tuesday to Wednesday?
A: Appreciate
3. What is the cross rate for the Brazilian Real in terms of Mexican Peso?
0.0751/0.4912=BR0.15289/MP
4. A bank provides the following quotes: Real0.15021/Mexican Peso and Real0.004143/Chilean Peso. Which of these cross rates provides the opportunity to conduct a profitable arbitrage?
A: The Real0.152890/Mexican Peso better than the bank quotes Real0.15021/Mexican Peso. So the Real/Mexican Peso is a profitable arbitrage.
5. Is the Australian Dollar trading at a forward premium or discount with respect to the 6 month forward rate?
A: premium
6. Compute the forward premium (or discount) on the 6 month forward rate on the Australian Dollar.
[(1.00879556-1.0251)/1.0251]*[360/120]=-0.04771566
7. Judging by the 3 Australian Dollar forward rates, are interest rates in Australia higher or lower than interest rates in the US?
A: Australia Dollar interest rate higher
8. Assume that interest rates in the US and Australia are each 4%. Is there an arbitrage opportunity and if so, in which currency should you borrow and in which currency should you invest/lend? (use the 6 month forward contract for this problem).
A:(1.00879556/1.0251)*(1+4%)>(1+4%)=>Borrow Australia Dollar, Lend US Dollar
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