Consider the Following If the Futures Market Price Is 1

question 9

Multiple Choice

Consider the following: $\begin{array}{lc} \text { Risk-free rate in the United States } & \text { 0.04 / year } \\ \text { Risk-free rate in Australia } & \text { 0.03 / year} \\ \text { Spot exchange rate } &1.67A\$/\$\\\end{array}$
If the futures market price is 1.63 A$/$, how could you arbitrage?

• A) Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and enter futures positions to purchase Australian dollars at the current futures price.
• B) Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, and enter futures positions to sell Australian dollars at the current futures price.
• C) Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price.
• D) Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price.
• E) There is no arbitrage opportunity.

Calculate the exchange gains or losses under different scenarios and accounting periods.

Differentiate between the gross and net method of recording hedging transactions.

Illustrate the impact of foreign currency exchange rate changes on financial statements.

Compare and analyze hedge accounting under International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE).

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Definitions:

Podocytes

Specialized cells in the kidney that wrap around capillaries of the glomerulus, playing a key role in the filtration of blood to form urine.

Ascending Limb

Part of the loop of Henle in the nephron of the kidney, which helps concentrate urine by allowing the reabsorption of water and salts.

Descending Limb

A portion of the loop of Henle in the nephron of the kidney, which is involved in the reabsorption of water back into the body.

Aldosterone

A hormone produced by the adrenal glands which regulates sodium and potassium levels in the blood, influencing blood pressure.