For this question you should assume that there are four economies – the U.S, the U.K, Canada and Europe. The U.S is the home economy. You are given the following information. The U.S interest rate is 0.08.
Interest Rate Spot Exchange rate Forward rate
U.K 0.05 1.0
Canada 0.15 2.0
b. What is the expected return for a U.S investor investing in Europe?
c. Suppose that inflation in the U.S will be three percent. What is inflation in Canada?
d. What is the real interest rate in Europe
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