If Interest Rates Are 2 Per Cent in the US

question 29

True/False

If interest rates are 2 per cent in the US and 3.5 per cent in Australia, the AUD will trade at an annualised forward discount of approximately 1.5 per cent.

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Definitions:

Capital Budgeting

The process through which a company evaluates and selects long-term investments that are consistent with its goal of maximizing shareholder value.

Aggressive Assumption

An optimistic and sometimes risky assumption used in financial forecasting or project planning, often involving higher revenues or lower costs than may actually be realistic.

Terminal Values

The value of an investment or project at the end of a forecast period, projecting its future cash flows beyond this period into perpetuity.

Uncertainty

refers to situations where the outcomes or future events are unknown or cannot be predicted with certainty.