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Question 4 (total of 10 marks): An investor has some Australian and Bangladeshi assets and...

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Finance

Question 4 (total of 10 marks): An investor has some Australian and Bangladeshi assets and liabilities as follows:

  • AUD 800,000 Australian house asset.
  • AUD 650,000 mortgage loan liability.
  • AUD 30,000 owing on her credit card.
  • BDT 12,000,000 Bangladeshi apartment asset thats owned outright with no mortgage. Note the apartment is denominated in Bangladeshi Taka (BDT), not Australian Dollars (AUD).
  • The current exchange rate is 85 BDT per USD. Note that this exchange rate is not per AUD. Its in BDT per USD.
  • The current exchange rate is 0.7 USD per AUD.

Give your answer as a decimal correct to at least 6 decimal places. So for example if your answer is 1.23456789%, write 0.0123456789. If your answer is 400,000, write 400000. Do not use percentages and do not write units (m or k) after the number.

Question 4dii (2 marks): If you convert the AUD10,000 into BDT, invest it at a Bangladeshi banks term deposit rate and convert back to AUD in one year, will the NPV definitely be zero or is it expected to be zero and you could actually make or lose money? Assume that cross currency interest rate parity holds.

Answer:

a: A zero NPV will definitely occur

b: a zero NPV is expected to occur

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