Question
Currently the US$1.00 = C$1.10. The US and Canadian nominal interest rates are expected to be 5% and 2% respectively for the next year. The
Currently the US$1.00 = C$1.10. The US and Canadian nominal interest rates are expected to be 5% and 2% respectively for the next year. The forward price is:
1. US $ Forward price =
2. Canadian $ Forward price =
Prove the exchange rate is arbitrage free
Canadian invests C$100 in the US for one year and enters into a forward contract to bring the money back at that time.
3. Invest in the US: Valueus =
4. Invest in Canada: Valuecad =
Step by Step Solution
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Step: 1
To calculate the forward prices and demonstrate that the exchange rate is arbitragefree we can use t...
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Structural Analysis
Authors: Russell Hibbeler
10th Edition
134610679, 978-0134610672
