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Currently, the spot exchanage rate is $0.80 USD/Cad and the one year forward exchange rate is $0.8240 USD/CAD. The one year interest rate is 8%
Currently, the spot exchanage rate is $0.80 USD/Cad and the one year forward exchange rate is $0.8240 USD/CAD. The one year interest rate is 8% per annum in the U.S. and 5% per annum in Candada. Assume that you can borrow as much as $1,000,000 or CAD 1,250,000. A) State whether teh interest rate parity is currently holding (Yes or No) B) And determine the expected future spot rate in one year E(S1) (show calculations) C) Determine the implied inflation rate in the Candada, Given US inflation is 6%, and using the other rate information above.
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