1. 4.

Using spot and forward exchange rates [LO 21.1] Suppose the spot exchange rate for the Canadian dollar is Can$1.29 and the six-month forward rate is Can$1.31.

1. Which is worth more, an Australian dollar or a Canadian dollar?

2. Assuming absolute PPP holds, what is the cost in Australia of an Elkhead beer if the price in Canada is Can$2.50? Why might the beer actually sell at a different price in Australia?

3. Is the Australian dollar selling at a premium or a discount relative to the Canadian dollar?

4. Which currency is expected to appreciate in value?

5. Which country do you think has higher interest rates—Australia or Canada? Explain.