Suppose the $/AUD spot rate is 2.00. The 180-day interest rates are 6% for AUD and 12% for dollar…


Suppose the $/AUD spot rate is 2.00. The 180-day interest rates are 6% for AUD and 12% for dollar.

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(a) Verify that a dollar investment and a hedged AUD investment provide identical returns

(b) Suppose you want to sell a AUD receivable 180-day forward. How can you use the money market instead? Check whether the two hedges are equivalent.