PPP and Currency Futures Assume that you believe purchasing power parity (PPP) exists. You expect that inflation in Canada during the next year will be 3 percent and inflation in the United States will be 8 percent. Today the spot rate of the Canadian dollar is $.90 and the 1-year futures contract of the Canadian dollar is priced at $.88.

Estimate the expected profit or loss if an investor sold a 1-year futures contract today on 1 million Canadian dollars and settled this contract on the settlement date.