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.

---

Definitions:

Enzymes

Biological molecules that significantly speed up the rate of virtually all of the chemical reactions that take place within cells.

Origin Of Life

The process by which living organisms emerged from non-living matter, the specifics of which are still under scientific investigation.

Amino Acids

Organic compounds that serve as the building blocks of proteins, containing both an amino group and a carboxyl group.

Proteins

Proteins are large, complex molecules made up of amino acids and are essential for the structure, function, and regulation of the body's tissues and organs.