Assume the current market futures price is 1.66 A$/$.You borrow 167,000 A$ and convert the proceeds to U.S.dollars and invest them in the U.S at the risk-free rate.You simultaneously enter a contract to purchase 170,340 A$ at the current futures prices (maturity of 1 year).What would be your profit (loss)?

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Quizplus · Accepted Answer

The profit is calculated by converting 167,000 A$ to USD at the rate of 1.66 A$/$. This gives 100,602.41 USD. After investing at the risk-free rate, you will have 100,602.41 USD at the end of the year. You then convert this back to A$ at the futures rate of 1.66 A$/$. This gives 167,000 A$. Since you borrowed 167,000 A$, your profit is 630 A$.

Assume the Current Market Futures Price Is 1