Question

1) Assume the interest rate is 4% in the UK and 8% in Australia. The forward GBP/AUD is 187 AUD. Compute the spot GBP/AUD that makes the IRP hold. Show your work

. 2) The spot EUR/USD is 1.12 and the forward rate is 1.1. The interest rate in France is 3% and 4% in the US. a) Does the iRP hold? b) If not, how could you make a CIA profit by using 1000 EUR? Show your work. c) What is the forward rate that would make CIA disappear?

3) The nominal rate is -0.5% in Japan and inflation is 0.75%. What is the real rate of return for investors in Japan?

Answer 1

Calculate the spot GBP/AUD.

Here,

The interest rate in Australia is denoted by $Qb0QH+3CfrTM8AAAAASUVORK5CYII=$

The interest rate in UK is denoted by

$fAkBUmILUVsAAAAASUVORK5CYII=$

Note: Please post remaining questions separately.