1.Suppose the spot exchange rate for the U.S. dollar is CAD$1.14 and the six-month forward rate is CAD$1.12.

a.Which is worth more, a U.S. dollar or a Canadian dollar?

multiple choice 1

• U.S. dollar
• Correct
• Canadian dollar

b.Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is CAD$2.95?(Round the answer to 2 decimal places. Omit $ sign in your response.)

Cost in U.S dollar$

2.Suppose the Japanese yen exchange rate is 80 = CAD$1, and the U.K. pound exchange rate is 1 = CAD$1.59.

a.What is the cross rate in terms of yen per pound?(Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit / sign in your response.)

Cross-rate /

b.Suppose the cross rate is 130 = 1. What is the arbitrage profit per dollar used?(Do not round intermediate calculations. Round the answer to 4 decimal places. Omit $ sign in your response.)

Arbitrage profitCAD$

3.UseFigure 32.1AandFigure 32.1Cto answer the following questions.(Do not round intermediate calculations. Round the final answers to 2 decimal places.)

Suppose interest rate parity holds, and the current six-month risk-free rate in Canada is 2.6 percent. The six-month risk-free rate be in the United Kingdom, Japan, and Germany must bepercent,percent, andpercent, respectively.

4.The treasurer of a major Canadian firm has CAD$32 million to invest for three months. The annual interest rate in Canada is 0.20 percent per month. The interest rate in the United Kingdom is 0.26 percent per month. The spot exchange rate is 0.631, and the three-month forward rate is 0.633.

What would be the value of the investment if the money is invested in CAD and Great Britain?(Do not round intermediate calculations. Round the final answers to 2 decimal places.Enter the answer in dollars. Omit $ sign in your response.)

CAD$Great Britain$

5.Suppose the spot and six-month forward rates on the Norwegian krone are Kr5.64 and Kr5.78, respectively. The annual risk-free rate in Canada is 4 percent, and the annual risk-free rate in Norway is 6 percent.

The six-month forward rate on the Norwegian krone would have to be Kr / $to prevent arbitrage.(Do not round intermediate calculations. Round the final answer to 4 decimal places. Omit Kr / $ sign in your response.)