Assume the Following Information: Current Spot Rate of Australian Dollar

question 70

Multiple Choice

Assume the following information: Current spot rate of Australian dollar
=
$) 64
Forecasted spot rate of Australian dollar 1 year from now
=
$) 59
1-year forward rate of Australian dollar
=
$) 62
Annual interest rate for Australian dollar deposit
=
9%
Annual interest rate in the United States
=
6%
​
Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____percent.

• A) about 6.60
• B) about 9.00
• C) about 7.33
• D) about 8.14
• E) about 5.59

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Definitions:

Deflation

A decrease in the general price level of goods and services, often indicating an economy in contraction.

Aggregate

A total or sum, often used in economics to describe combined quantities like total output or income.

Frictional Unemployment

represents short-term unemployment that occurs when workers are between jobs or entering the labor force for the first time.

Labor Force

The total number of people employed or actively seeking employment in a country or region.