Question

If the spot exchange rate is 0.62 euro per Canadian dollar and the three-month forward rate is 0.60 euro per Canadian dollar, then the ________ on the Canadian dollar in percentage (at an annual rate) is roughly ________.

Select one:

a. forward premium, 3.226%

b. forward premium, 12.90%

c. forward discount, 12.90%

d. forward discount, 3.226%

The 1-year interest rates on Canadian dollar and U.K. pound are 2 % and 5 % respectively. If the current spot rate is 2 Canadian dollar per pound, then the 1-year forward rate (F _{Canadian $/£} ) implied by the covered interest rate parity approximation would be______.

Select one:

a. 1.94

b. 2.15

c. 2.06

d. 0.97

If two countries had the same term structures of interest rates, then the forward premium or discount would be_________.

Select one:

a. decreasing

b. increasing

c. one

d. zero

Suppose that the U.S. inflation rate is 4 percent and the U.K. inflation rate is 1.5 percent. The current spot rate is 1.2 $/£ today. The PPP exchange rate in the long run should be______; and the U.K. pound today is said to be________.

Select one:

a. 1.17 $/£; undervalued

b. 1.23 $/£; undervalued

c. 1.23 $/£; overvalued

d. 1.17 $/£; overvalued

Answer 1

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