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Assume you are a corporate customer - therefore, a price taker
Assume you are a corporate customer - therefore, a price taker. You need to buy AUD versus USD outright for delivery in 3 months. ANZ and Westpac's spot prices are 0.7515/19 and 0.7518/23 respectively. Their 3 month FX swap prices are 37/36 and 38/37, respectively. By combining the prices from both banks, the best possible available 3 month hedge rate is: Select one: a. 0.7482 b. 0.7487 C. 0.7480 d. 0.7486 e. 0.7483 The correct answer is: 0.7482
Expert Solution
Need to buy AUD so we will take ask rate from the both the banks
Ask rates from both the banks are
0.7519 and 0.7523
Now the swap prices must be deducted from the spot prices because it is given High for bid/Low for ask
So We will less low from ask price so that ask price should be more than the bid price
Deduct from the last digits.
0.7519-0.0036 and 0.7523-0.0037
0.7483 and 0.7486
So 0.7483 is the right answer.
But they may have Deduct 0.0037 from 0.7519
Than It will be 0.7482.
Lowest the better because AUD is to be purchased.
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