Problem 1: Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
- $10,003.
- $12,063.
- $14,441.
- $16,393.
- $18,219.
Problem 2: With regard to hedging translation exposure, translation losses _______; and gains on forward contracts used to hedge translation exposure _______.
- are not tax deductible; are taxed
- are tax deductible; are taxed
- are not tax deductible; are not taxed
- are tax deductible; are not taxed