8. Suppose that as the money manager of a US firm you faced the following situation:

n rB$

9.0%

n rI

$ 8.0%

n rB C$ 10.5%

n rI C$ 9.5%

n S(C$/ask$) 1.0400 n S(C$/bid$) 1.0350 n F1(C$/ask$) 1.0600 n F1(C$/bid$) 1.0550 Here, rB$

and rI

$ are the one-year interest rates at which you can, respectively, borrow and invest in the United States, and rB C$ and rI C$ are the one-year borrowing and investing interest rates in Canada.

a. If you had funds to invest for one year, in which country would you invest?

b. If you wished to borrow for one year, in which country would you borrow?

c. What might induce you to borrow and invest in the same country?

d. If you needed Canadian dollars to pay for Canadian goods in one year and were not holding US dollars, would you buy forward or use a swap?

e. If you needed Canadian dollars to pay for Canadian goods in one year and already had some US dollars, would you buy forward or use a swap?