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    Locational Arbitrage; Hedging Translation Exposure

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    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.

    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

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    Solution Preview

    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. ...

    Solution Summary

    Answers to multiple choice questions on Locational Arbitrage and Hedging Translation Exposure

    $2.19

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