Consider the Following If the Market Futures Price Is 1

question 52

Multiple Choice

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

Hypothalamus

A critical brain region involved in regulating physiological processes, including temperature, thirst, hunger, and emotional responses.

Thalamus

A small structure within the brain that acts as a relay station for sensory and motor signals to the cerebral cortex, playing a key role in regulating consciousness and sleep.

Cerebellum

A part of the brain that plays important roles in motor control, and it may also be involved in some cognitive functions.

Hippocampus

A major component of the brain involved in memory formation and spatial navigation.