Today, Short-Term Interest Rates in Australia Are 8

question 37

Multiple Choice

Today, short-term interest rates in Australia are 8.50% and the corresponding U.S. rate is 6.0%. The current discount on forward Australian dollars is 2.0%. Can a U.S. trader use covered interest arbitrage to take advantage of this situation? If so, what is the net effect?

• A) No; lose 1/2%
• B) No; lose 2 1/2%
• C) Yes; gain 1/2%
• D) Yes; gain 2 1/2%

---

Definitions:

Phenomenal Increase

A phenomenal increase refers to an extraordinary or remarkable rise in quantity, size, or extent.

Computers

Electronic devices that can store, retrieve, and process data, and are used widely in all aspects of modern life for various purposes, including communication, work, and entertainment.

Online Identity Thieves

Individuals or groups who steal personal information over the internet to impersonate or commit fraud.

Law Enforcement Agencies

Organizations at local, state, or federal levels responsible for maintaining public order, enforcing laws, and preventing, detecting, and investigating crimes.