Question

The current interest rate in USA and Australia are 10% and 14%. The spot rate is...

The current interest rate in USA and Australia are 10% and 14%. The spot rate is AU$1.6667/US$. The payment to be made in a year is 10 million AU$. Compute the amount required in US$ in a year.
a. $ 5,784,000 b. $ 5,783,784 c. $ 5,789,474 d. $ 5,789,000

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Answer #1
Forward rate= Australian dollar per USD * (1+Interest rate in Australia)/(1+Interest rate in USA)
Forward rate= =1.6667*(1+0.14)/(1+0.10)
Per USD                     1.7273
Payment in Australian dollar after 1 year             10,000,000
Payment in USD after 1 year 10000000/1.7273
Payment in USD after 1 year $           5,789,474
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