You are requested to provide some recommendations to a bank’s board, on how to improve financial performance in the future. Focus on issues related to profitability, risk exposures, sources of income for the bank, as well as the use of the bank’s funds.
The Spot Rate (S0) for USD to Australian Dollars (AUD) is USD 0.91 to AUD 1. The riskless rate of interest in the US for 3 months (RUS) is 0.2%. The riskness rate in Australia (Foreign Country) is 1.4%. According to the Covered Interest Rate Parity relationship, what should be the 3-month Forward rate (F) of USD to AUD? (Note: Your answer should be the number of USD for AUD 1 in the 3-month Forward rate for USD to AUD.)