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

rB

$ 9:0%

rI$

8:0%

rB C$ 10:5%

rI C$ 9:5%

S(C$/ask$) 1:2400 S(C$/bid$) 1:2350 F1(C$/ask$) 1:2600 F1(C$/bid$) 1:2550 Here, rB

$ and rI$

are the 1-year interest rates at which you can, respectively, borrow and invest in the United States, and rB C$ and rI C$ are the 1-year borrowing and investing interest rates in Canada.

a If you had funds to invest for 1 year, in which country would you invest?

b If you wished to borrow for 1 year, from 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 1 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 1 year and already had some US dollars, would you buy forward or use a swap?