Question
If the spot rate for the Canadian Dollar is that 1.25 C$ is equal to 1 US $, and the annual interest rate on fixed
If the spot rate for the Canadian Dollar is that 1.25 C$ is equal to 1 US $, and the annual interest rate on fixed rate one-year deposits of C$ is 2.1% and for US$ is 0.5%, using the formulas in the FX Crib Sheet what is the nine-month forward rate for one dollar in terms of C$s? Assuming the same interest rates, what is the 18-month forward rate for one C$ in US$s? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, in this case will the C$ get stronger or weaker against the dollar? What does this indicate about the markets inflation expectations for Canada as compared to the United States economy?
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