The Australian and New Zealand annualised interest rates are given as follows: AUD deposits/loan rate...
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The Australian and New Zealand annualised interest rates are given as follows: AUD deposits/loan rate of 7.10% - 7.50% and NZD deposit/loan rate of 6.80% - 7.25%. Trensor bank can borrow 5 million AUD and believes that there is a possible arbitrage opportunity by investing into New Zealand money market. The spot exchange rate is AUD 0.48/NZD, and 180-day forward rate would be AUD 0.50/NZD. What is Trensor banks Australian dollar profit after 180 days from the covered interest arbitrage transaction (i.e. find the future value of the Australian dollar profit)?
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