Consider the Following If the Market Futures Price Is 1

question 47

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 market futures price is 1.69 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.

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Definitions:

Associative Agnosia

A condition in which individuals are unable to recognize objects despite having the ability to perceive their shape, color, and texture.

Matching Objects

The cognitive process of identifying similarities or differences among objects and grouping them based on their attributes.

Theory of Direct Perception

A theory suggesting that the environment provides all necessary cues for perception, which are directly picked up by the senses without need for cognitive processing.

Perceptual Information

Information that is sensed and interpreted by the brain from the environment through the sensory organs, forming the basis of perception.