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In the spot market, 1-year risk-free securities yield 5 percent in the United States. In the spot market, the exchange rate is such that 1
In the spot market, 1-year risk-free securities yield 5 percent in the United States. In the spot market, the exchange rate is such that 1 U.S. dollar equals 1.35 Canadian dollars. In the 1-year forward exchange market, the exchange rate is such that 1 U.S. dollar equals 1.45 Canadian dollars. Assume that interest rate parity holds. What is the interest rate on 1-year risk-free Canadian securities? a. 2.3% b. 10.8% c. 12.4% d. 12.8% e. 13.596
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