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Suppose a Canadian bond portfolio manager wishes to enhance his yield on Canadian short-term bills. Current one-year Canadian T-Bills yield 13%. The current spot rate
Suppose a Canadian bond portfolio manager wishes to enhance his yield on Canadian short-term bills. Current one-year Canadian T-Bills yield 13%. The current spot rate is C$ 1.40/$. The one-year forward rate is C$ 1.50/$. The US one-year T-Bill rate is 6%. What is the Canadian T-Bill rate implied by interest rate parity? What percentage yield could the portfolio manager obtain by exploiting the arbitrage opportunity? (Show your calculations!)
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