Consider the Following -If the Market Futures Price Is 1

question 16

Multiple Choice

Consider the following: $$\begin{array} { | l | l | } \hline \text { Risk-free rate in the United States } & 0.04 \text { year } \\\hline \text { Risk-free rate in Australia } & 0.03 / \text { year } \\\hline \text { Spot exchange rate } & 1.67 \mathrm { A } \$ /\$ \\\hline\end{array}$$
-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 and 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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