Question
Suppose today's exchange rate is $USD 0.90/CAD. The annualized six-month interest rates on US dollars and Canadian dollars are 2% and 5% respectively. The six-month
| Suppose today's exchange rate is $USD 0.90/CAD. The annualized six-month interest rates on US dollars and Canadian dollars are 2% and 5% respectively. The six-month forward rate is $USD 0.89/CAD. A foreign exchange advisory service has predicted that the CAD will appreciate to $USD 0.93/CAD within six months. Does covered interest rate parity hold? What kind of forward contract should be used? What is the arbitrage profit per $100,000 USD? |
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
14th edition
1337090581, 978-1337090582
