Suppose the spot exchange rate for the U.S. dollar is CAD$1.07 and the six-month forward rate is CAD$1.09.

a. Which is worth more, a U.S. dollar or a Canadian dollar?

multiple choice 1 U.S. dollar Canadian dollar

b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is CAD$3.40? (Round the answer to 2 decimal places. Omit $ sign in your response.)

Cost in U.S dollar $

c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

multiple choice 2 Discount Premium

d. Which currency is expected to appreciate in value?

multiple choice 3 U.S. dollar Canada dollar

e. Which country do you think has higher interest ratesthe United States or Canada?

multiple choice 4 U.S. Canada