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Assume that covered interest rate parity (IRP) exists (meaning, there is no arbitrage opportunity). Spot rate of Canadian Dollar (CAD) = $0.688 1-month forward rate
| Assume that covered interest rate parity (IRP) exists (meaning, there is no arbitrage opportunity). |
| Spot rate of Canadian Dollar (CAD) = $0.688 |
| 1-month forward rate of CAD = $0.673 |
| a. Would the annualized 1-month Canadian risk-free interest rate be above, below, or equal to the US risk-free interest rate (in order for IRP to hold)? Explain. |
| b. Calculate what the annualized 1-month Canadian interest rate would be if the US 1-month rate (annualized) is 0.71%. |
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Managerial Finance
Authors: John Fred Weston, Eugene F. Brigham, John Boyle, Robin John Limmack
1st Edition
0039101975, 978-0039101978
