Question

Please show how answer is derived.

Kanga Co. expects to receive A$500,000 in 360 days. Interest rates are as follows::
​	U.S.	Australia
360-day borrowing rate	6%	4%
360-day deposit rate	5%	3.5%
The forward rate of the Australian dollar is $.75 and the spot rate of the Australian dollar is $.73. Kanga Co. plans to use a money market hedge for 360 days.
(1) How many A$ will you borrow?
(2) How many U.S. dollars will you receive when you convert the borrowed Australian dollars to U.S. dollars
(3) How many U.S. dollars will you have after investing them for 360 days?

Answer 1

Amount borrowed in Australian dollars=	500000/(1+4%)
	480,769.23
Amount converted back to USD	480769.23*0.73
	350,961.54
Amount in USD after 360 days	=350961.54*(1+5%)
	368,509.62