Question

In: Finance

Suppose the spot exchange rate for the Canadian dollar is Can$1.29 and the six-month forward rate...

Suppose the spot exchange rate for the Canadian dollar is Can$1.29 and the six-month forward rate is Can$1.31.

  

a.

Which is worth more, a U.S. dollar or a Canadian dollar?

  • U.S. dollar

  • Canadian dollar
b.

Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.50? (Round your answer to 2 decimal places, e.g., 32.16.)


   


c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

  • Premium

  • Discount
d. Which currency is expected to appreciate in value?

  • Canandian dollar

  • U.S. dollar
e. Which country do you think has higher interest rates—the United States or Canada?

  • United States

  • Canada

Solutions

Expert Solution

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Suppose the exchange rate for the Canadian dollar (USD/CAD) is quoted as 1.34 in the spot...
Suppose the exchange rate for the Canadian dollar (USD/CAD) is quoted as 1.34 in the spot market and 1.30 in the 90-day forward market. Does the financial market expect the Canadian dollar to strengthen or weaken relative to the dollar?
Suppose that the current spot rate is €0.80/$ and the 3-month forward exchange rate is €0.7813/$....
Suppose that the current spot rate is €0.80/$ and the 3-month forward exchange rate is €0.7813/$. The 3-month interest rate is 4.6% per annum in the U.S. and 4.4% per annum in France. Assume that you can borrow up to $1,000,000 or €800,000. Show how to realize a certain profit without taking any risk, assuming that you want to realize profit in terms of $. Also determine the size of your profit.
Currently, the spot exchange rate is €_____/$ and the three-month forward exchange rate is €_____/$ (Please...
Currently, the spot exchange rate is €_____/$ and the three-month forward exchange rate is €_____/$ (Please refer to the assigned figures in Table 3 below). The three-month interest rate is 2.8% per annum in the U.S. and 1.6% per annum in France. Assume that you can borrow as much as $1,000,000 or €__________(Please refer to the assigned figures in Table 1 below). a. Determine whether the interest rate parity is currently holding. If the IRP is not holding, how would...
The spot rate of the US dollar is 70/USD and the three month forward rate is...
The spot rate of the US dollar is 70/USD and the three month forward rate is INR 72/USD. Is the rupee trading at discount t or premium? The 90-day interest rate is 1.5% in the US and 4% in India. The current spot exchange rate is INR 70/USD. What will be the 90-day forward rate? (CIP) The current spot rate for the JPY is INR 1.55. The expected inflation is 8% in India and 1.5% in Japan. What is the...
Suppose that the $/€ spot exchange rate is 1.20 $/€ and the 1 forward rate is...
Suppose that the $/€ spot exchange rate is 1.20 $/€ and the 1 forward rate is 1.24$/€. The yields on 1 U.S. and EU. Treasury Bills are U.S 10% and EU 7%. Use the exact form interest parity condition. Note that these numbers are hypothetically constructed to give arbitrage profits. (1) Calculate the covered interest differentials using Covered IPC (extra profits from investing in EU). (2) Suppose that U.S. investor is considering a covered investment in EU Treasury bills financed...
Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The...
Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The three-month interest rate is 5.84% per annum in the U.S. and 5.84% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. If the IRP is not holding, determine the arbitrage profit in British Pound. Otherwise input your answer as 0 PS: Please input your answer without any currency information.
Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The...
Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. Calculate your arbitrage profit in USD
Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The...
Currently, the spot exchange rate is $1.52/£ and the three-month forward exchange rate is $1.54/£. The three-month interest rate is 5.84% per annum in the U.S. and 5.84% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000. Your final answer should be in dollars. If the IRP is not holding, determine the arbitrage profit. Otherwise input your answer as 0 PS: Please input your answer without any currency information.
Currently the spot exchange rate is $1.50/£ and the three month forward exchange rate is $1.52/£....
Currently the spot exchange rate is $1.50/£ and the three month forward exchange rate is $1.52/£. The three month interest rate is 8.0% per annum in the US and 5.8% per annum in the UK. Assume that you can borrow as much as $1M. or £1M. Is there a covered interest arbitrage opportunity for a US multinational? What is the payoff if they conducted CIA? Is there a covered interest arbitrage opportunity for a UK multinational? What would be their...
The existing spot rate of the Canadian dollar is $.80. The premium on a Canadian dollar...
The existing spot rate of the Canadian dollar is $.80. The premium on a Canadian dollar put option is $.03. The exercise price is $.84. The option will be exercised on the expiration date if at all. If the spot rate on the expiration date is $.82, the profit as a percent of the initial investment (the premium paid) is: a) 0 percent b) 25 percent c) 50 percent d) 125 percent e) none of the above
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT