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The U.S. interest rate is7 percent and the Canadian dollars interest rate is 6 percent. The Canadian dollar's forward rate has a premium of 2
The U.S. interest rate is7 percent and the Canadian dollars interest rate is 6 percent. The Canadian dollar's forward rate has a premium of 2 percent. (1) Calculate the effective financing rate for U.S. firms. (2) Does interest rate parity hold? (3) Could U.S. firms lock in a lower financing cost by borrowing Canadian dollars and purchasing Canadian dollars forward for one year? Explain. |
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