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5. The U.S. 3-month interest rate (uvannualized) is 2 percent. The Canadian 3-month interest rate (unannualized) is 5 percent. Interest rate parity exists. The expected
5. The U.S. 3-month interest rate (uvannualized) is 2 percent. The Canadian 3-month interest rate (unannualized) is 5 percent. Interest rate parity exists. The expected inflation over this period is 5 percent in the United States and 2 percent in Canada. A put option with a 3-month expiration date on Canadian dollars is available for a premium of $.02 and a strike price of $.64. The spot rate of the Canadian dollar is $.65. Assume that you believe in purchasing power parity. All answers need to accompany the contingency graph. a. Determine the dollar amount of your profit or loss from buying a put option contract specifying C$100,000. b. Determine the dollar amount of your profit or loss from selling a futures contract specifying C$100,000 Total marks: 5
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