An Australian firm has net receivables of 400,000 CAD in one year’s time as compensation for work undertaken. Current spot rate is AUD/CAD 0.9446 / 0.9455 Interest rates in Canada are currently 0.5% for investing and 4% for borrowing. Australian interest rates are currently 0.25% for investing and 3.5% for borrowing. All interest rates are quoted in annual nominal terms. The firm wishes to implement a money market hedge. To implement a money market hedge (no change in the timing of cash flows, only the currency), how much should be invested by the firm? (Answer to the nearest dollar)

You are offered the following two quotations by independent dealers, one in Papua New Guinea and one in the US. What arbitrage opportunity is available? USD / PGK 2.9283 / 3.1104 PGK / USD 0.3302 / 0.3354

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