29) As of April 15, 2018, the observed exchange rate CAD/JPY = 87.01. If you expect the inflation rate in Canada to be 2% per year over the next four years and you expect the Japanese inflation rate to be 0.5% per year over the same time period, which of the following statements are true? a) You expect the exchange rate four years from today to be CAD/JPY = 81.91 b) You expect the Yen to depreciate vis--vis the Canadian dollar c) If you have CAD 10,000 to invest and nominal interest rates are the same in both countries, you would prefer to invest in Yen, not Canadian dollars d) All of the above are true e) Only a) and c) above are true 30) You believe that a risk-free arbitrage opportunity exists whereby you can borrow $10,000 in Canadian dollars, invest the funds in Switzerland (in CHF) and then convert them back into Canadian dollars at the end of one year. If you are correct, you will be able to earn a positive rate of return, after you pay the interest on the borrowed Canadian funds. The information you have gathered is as follows: i) Spot exchange rate is CAD/CHF -0.7668 ii) One year forward exchange rate is CAD/CHF = 0.7460 iii) Canadian one-year T bill rate = 1.0% iv) Swiss one-year T bill rate=2.0% v) Canadian interest rate on one-year loans = 3% Which of the following statements regarding this transaction are true? a) Upon conversion into Swiss francs (CHF), you would have CHF 7,668 b) If you invest the borrowed funds in Canada, you would lose $200 after paying the interest on the borrowed funds c) If you convert CAD to CHF at the spot rate, invest in CHF for one year and then convert the CHF investment back into CAD at the forward rate, you would have CAD 184.40 left over, after paying your CAD interest d) All of the above are true e) Only a) and b) are true 29) As of April 15, 2018, the observed exchange rate CAD/JPY = 87.01. If you expect the inflation rate in Canada to be 2% per year over the next four years and you expect the Japanese inflation rate to be 0.5% per year over the same time period, which of the following statements are true? a) You expect the exchange rate four years from today to be CAD/JPY = 81.91 b) You expect the Yen to depreciate vis--vis the Canadian dollar c) If you have CAD 10,000 to invest and nominal interest rates are the same in both countries, you would prefer to invest in Yen, not Canadian dollars d) All of the above are true e) Only a) and c) above are true 30) You believe that a risk-free arbitrage opportunity exists whereby you can borrow $10,000 in Canadian dollars, invest the funds in Switzerland (in CHF) and then convert them back into Canadian dollars at the end of one year. If you are correct, you will be able to earn a positive rate of return, after you pay the interest on the borrowed Canadian funds. The information you have gathered is as follows: i) Spot exchange rate is CAD/CHF -0.7668 ii) One year forward exchange rate is CAD/CHF = 0.7460 iii) Canadian one-year T bill rate = 1.0% iv) Swiss one-year T bill rate=2.0% v) Canadian interest rate on one-year loans = 3% Which of the following statements regarding this transaction are true? a) Upon conversion into Swiss francs (CHF), you would have CHF 7,668 b) If you invest the borrowed funds in Canada, you would lose $200 after paying the interest on the borrowed funds c) If you convert CAD to CHF at the spot rate, invest in CHF for one year and then convert the CHF investment back into CAD at the forward rate, you would have CAD 184.40 left over, after paying your CAD interest d) All of the above are true e) Only a) and b) are true
