Consider the Following Assume the Current Market Futures Price Is 1

question 9

Multiple Choice

Consider the following: $$\begin{array} { l l } \text { Risk-free rate in the United States } & 0.04 / \mathrm { year } \\\text { Risk-free rate in Australia } & 0.03 / \mathrm { year } \\\text { Spot exchange rate } & 1.67 \mathrm {~A} / \$\end{array}$$ Assume the current market futures price is 1.66 A$/$. You borrow 167,000 A$, convert the proceeds to U.S. dollars, and invest them in the U.S. at the risk-free rate. You simultaneously enter a contract to purchase 170,340 A$ at the current futures price (maturity of 1 year) . What would be your profit (loss) ?

• A) Profit of 630 A$
• B) Loss of 2300 A$
• C) Profit of 2300 A$
• D) Loss of 630 A$

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