Suppose the spot exchange rate for the U.S. dollar is CDN$1.18 and the six-month forward rate is

Question:

Suppose the spot exchange rate for the U.S. dollar is CDN$1.18 and the six-month forward rate is CDN$1.13.

a. Which is worth more, a U.S. dollar or a 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 CDN$2.19? Why might the beer actually sell at a different price in the United States?

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

d. Which currency is expected to appreciate in value?

e. Which country do you think has higher interest rates—the United States or Canada? Explain.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...