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1 What would be the one-month forward exchange rates (USD/AUD) if the spot USD/AUD rates are 0
1 What would be the one-month forward exchange rates (USD/AUD) if the spot USD/AUD rates are 0.5770-80 and the one-month swap rates are 20-10? O USD/AUD 0.5790-90 O USD/AUD 0.5755-90 O USD/AUD 0.5785-90 O USD/AUD 0.5750-70
2 You are given the following information: -0.8 Elasticity of demand for exports -4.0% Per annum change in the US dollar price of exports 500 Quantity of exports 400 Quantity of imports 1.8769 AUD/USD exchange rate What is the quantity of exports at the end of one year? 525 O 516 510 0.484
Expert Solution
1 Answer : - 0.5750-70
In the given question, one month swap points are in descending order. Hence, the swap rates are to be deducted from the spot rate to obtain forward rate.
One month forward rate is
Spot rate - 0.5770 - 80
Less Swap Rate - 20-10
Forward Rate 0.5750-70
2
Change in quantity of exports = ΔQ = e x ΔP = -0.8 x (-4%) = 3.2%
Hence, qunatum of export = Q0 x (1 + ΔQ) = 500 x (1 + 3.2%) = 516
Hence, the correct answer is the second option i.e. option b.
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