If the spot rate C$/$ is 1.4050 and the US interest rate is 5% and Canadian interest rate is 6%,

If the spot rate C$/$ is 1.4050 and the US interest rate is 5% and Canadian interest rate is 6%, then one-year equilibrium forward rate (C$/$) is

a) 1.4184 b) 1.3917 c) 1.4250 d) 1.3858

Expert Solution

The Canadian interest rate will be growing by 6% and the US interest rate will be growing by 5%

The C$/$ means the Canadian dollar to dollar spot rate is given as 1.4050. So the forward exchange rate will also grow by the Canadian rate and get discounted by the US rate as it is a Canadian dollar to the US dollar exchange rate.

The formula for calculating the forward premium or foreign exchange rate is given by:

forward rate = spot rate x (1 + Canadian interest rate) / (1 + US interest rate) = 1.4050*(1.06/1.05) = 1.41838 or 1.4184(rounded)

jeff jeffy answered 2 years ago

Assume the canadian spot rate is 1.18C$/US$, the swiss franc spot rate is 1.29CHF/US$ and the...

Assume the canadian spot rate is 1.18C$/US$, the swiss franc spot rate is 1.29CHF/US$ and the market cross rate is 1.11CHF/C$ A. Calculate the implied cross rate of CHF/C$. B. Calculate the triangular profit. Assume you have US $1,000 to work with. State the currencies you need to buy and sell in order to earn the arbitrage profit

assume the Canadian dollar spot rate is 1.18c$/us$, the swiss spot rate is 1.29CHF/us$ and the...

assume the Canadian dollar spot rate is 1.18c$/us$, the swiss spot rate is 1.29CHF/us$ and the market cross rate is 1.11 chf/c$ a. calculate the implied cross-rate of CHF/c$ b calculate the triangular arbitrage profit, assume you have us$1000 to work with

Covered Interest Arbitrage: The spot rate is currently: 1.6131 $/pound US interest rate 1.0% The 6...

Covered Interest Arbitrage: The spot rate is currently: 1.6131 $/pound US interest rate 1.0% The 6 month forward is: 1.6022 $/pound UK interest rate 2.5% a.) Is Arbitrage possible? Use the forward as a percentage to show why. What items do you compare to arrive at your answer? Explain fully. b.) Us the forward as a percentage in a sentence that correctly describes what it means. c.) How to Profit. For this part show how the arbitrage would be carried...

If the spot rate S/£ is $1.3050 and the US interest rate is 3% and the...

If the spot rate S/£ is $1.3050 and the US interest rate is 3% and the UK interest rate is 4%, then one year equilibrium forward rate is

Suppose the spot USD/INR is 46.75 and 1 year US interest rate is 5% while it...

Suppose the spot USD/INR is 46.75 and 1 year US interest rate is 5% while it is 11% in India. A bank is quoting 1 year forward rate as 43.35. The spot rate at maturity (360 days) USD/INR is 45. As a trader on the foreign exchange market you wish to speculate and take advantage of an arbitrage opportunity. Using covered interest rate parity does an arbitrage opportunity exist? Calculate the profit. Using uncovered interest rate parity does an arbitrage...

The U.S. interest rate is7 percent and the Canadian dollar’s interest rate is 6 percent. The...

The U.S. interest rate is7 percent and the Canadian dollar’s interest rate is 6 percent. The Canadian dollar's forward rate has a premium of 2 percent. (1) Calculate the effective financing rate for U.S. firms. (2) Does interest rate parity hold? (3) Could U.S. firms lock in a lower financing cost by borrowing Canadian dollars and purchasing Canadian dollars forward for one year? Explain.

Consider the following spot rate curve: 6-month spot rate: 5%. 12-month spot rate: 9%. 18-month spot...

Consider the following spot rate curve: 6-month spot rate: 5%. 12-month spot rate: 9%. 18-month spot rate: 13%. What is the forward rate for a one-year zero coupon bond issued 6 months from today? Equivalently, the question asks for f21, where 1 time period consists of 6 months. Assume semi-annual compounding. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.

1)i)A Canadian banker observes the spot rate between Canadian dollars and pounds is currently C$1.06/£ ....

1)i)A Canadian banker observes the spot rate between Canadian dollars and pounds is currently C$1.06/£ . One year inflation rates in Canada and Great Britain are expected to be 3% and 5%, respectively. Suppose the spot rates for Canadian dollars and pounds at the end of the year are as follows:C$1.07/$, £1.05/$ Which of the following statements is true according to relative PPP? Round intermediate steps to four decimals. a)The pound appreciated in real terms.b)The Canadian dollar depreciated in real...

0.58£/C$ is the real Canadian dollar-British spot rate.If Canada 's actual nominal one-year interest rate...

0.58£/C$ is the real Canadian dollar-British spot rate. If Canada 's actual nominal one-year interest rate is 2% and Britain's equivalent rate is 3%, then what's the estimated 90-day forward exchange rate?

Assume that the current spot rate for the Canadian dollar is 0.71 USD per C$. How...

Assume that the current spot rate for the Canadian dollar is 0.71 USD per C$. How will the Canadian dollar (C$) spot rate adjust over the next year according to Purchasing Power Parity (PPP), given the following information. That is, according to PPP, what is the expected appreciation/depreciation in the Canadian dollar over the next year AND what is the expected future spot rate of the Canadian dollar one year from now? Use the information in the table below to...

Question