Question
Suppose in the spot market 1 U.S. dollar equals 1.32 Canadian dollars. 6-month Canadian securities have an annualized return of 7.60% (and thus a 6-month
Suppose in the spot market 1 U.S. dollar equals 1.32 Canadian dollars. 6-month Canadian securities have an annualized return of 7.60% (and thus a 6-month periodic return of 3.80%). 6-month U.S. securities have an annualized return of 8.00% and a periodic return of 4.00%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market? In other words, how many Canadian dollars are required to purchase one U.S. dollar in the 180-day forward market? Do not round the intermediate calculations and round the final answer to four decimal places.
a. 1.4250 C$ b. 1.3175 C$ c. 1.3225 C$ d. 1.2228 C$ e. 0.7590 C$
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started