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The 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25% p.a. The spot exchange rate is USD0.8203/CAD

The 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25% p.a. The spot exchange rate is USD0.8203/CAD and the 6-month forward exchange rate is USD0.8113/CAD. .


(1) Are interest rates and forward rate in equilibrium?


(2) For a transaction size of US$700,000, how can an investor take advantage of the situation without taking undue risks? Ignore transaction costs and income taxes

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