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Exchange rate is currently $0.7 US per 1 Canadian dollar. Interest rate is 2% in the US and 1% in Canada. A bank has entered
Exchange rate is currently $0.7 US per 1 Canadian dollar. Interest rate is 2% in the US and 1% in Canada. A bank has entered a futures contract to buy 1,000,000 Canadian dollars for $700,000 U.S. in one year. Which of the following statements is correct?
a. | The bank has contracted to buy Canadian dollars below the expected future exchange rate | |
b. | The bank has contracted to buy Canadian dollars at the expected future exchange rate | |
c. | The bank has contracted to buy Canadian dollars above the expected future exchange rate |
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