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Given the information below and assuming efficient markets in Canada and the U.S., answer the following questions: a. What do the financial markets suggest for
Given the information below and assuming efficient markets in Canada and the U.S., answer the following questions:
a. What do the financial markets suggest for inflation in Canada next year?
b. Estimate today's one-year forward exchange rate between the US dollar and Canadian dollar.
| Assumptions |
| Canada |
| USA |
| Spot exchange rate (C$/$) |
| 1.3264 |
| 1.3264 |
| One-year Treasury bill rate |
| 3.600% |
| 4.200% |
| Expected inflation rate |
| Unknown |
| 1.300% |
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