Homework answers / question archive / Adam has saved C$1,000 and plans to go surfing in Australia next summer

Adam has saved C$1,000 and plans to go surfing in Australia next summer

Psychology

Share With

Adam has saved C$1,000 and plans to go surfing in Australia next summer. He won't need the money for a year, so he decides to invest it. Adam could invest the money in Canada, where a T-bill will earn 4.5 percent, and then convert it to Australian dollars (AU$) just before he leaves. Alternatively, Adam could convert the funds today and invest in an Australian T-bill earning 5.2 percent. Which approach should he take if the currency spot rate is C$0.90431/AU$ and the one-year forward rate is C$0.89829/AU$?