Question

Suppose the spot exchange rate for the Canadian dollar is Can$1.06 and the six-month forward rate is Can$1.08. | |

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 Can$2.89?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.) |

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? |

Answer #1

ans a) US dollar has more worth because value of 1 USD = 1.06 can$

it means whatever we can purchase using only 1USD , if payment is done in terms of canadian dollar, you have to pay 1.06 can$ for same thing.

ans b) price of beer in Can$= 2.89 Can $

spot exchange rate is 1.06CAN $ / 1USD

OR 0.943 USD / 1 CAN $

price of beer in USD = 2.89CAN$ * 0.943 USD / 1 CAN $

=2.73 USD

C) AS DOLLAR PRICE in Forward market is greater than spot exchange rate (can$1.08/1 USD> can$1.06/ USD

dollar is said to be seeling at a premium

d)

as USD is seeling at premium it is likely to appreciate and Can $ is likely to depreciate

e)according to interest rate parity theory , exchange rate forward premiiums or discounts nulifies the difference between the interest rate between the two countries as they will not be able to earn arbitrage profit

Suppose the spot
exchange rate for the Canadian dollar is Can$1.04 and the six-month
forward rate is Can$1.06.
a.
Which is worth more, a U.S. dollar or a Canadian dollar?
Canadian dollar
U.S. dollar
b.
Assuming absolute PPP holds, what is the cost in the United States
of an Elkhead beer if the price in Canada is Can$2.69?
(Enter your answer as directed, but do not round
intermediate calculations. Round your answer to 2 decimal places,
e.g.,...

Suppose the spot exchange rate for the Canadian dollar is
Can$1.15 and the six-month forward rate is Can$1.17.
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 Can$3.00?
(Round your answer to 3 decimal places, e.g.,
32.161.)
c.
Is the U.S. dollar selling at a premium or a discount relative
to the Canadian dollar?...

Suppose the spot exchange rate for the Canadian dollar is
Can$1.10 and the six-month forward rate is Can$1.07.
Assuming absolute PPP holds, what is the cost in the United
States of an Elkhead beer if the price in Canada is Can$3.14?

The spot exchange rate for Canadian dollars is $C1.33/$US.Dollars
six-month interest rate
one-year interest rateCanada
2%
2.5%U.S.
2.5%
2.75%a. What is the six-month fair forward
exchange rate?b. Is the Canadian dollar a discount
or premium currency vs. the United States dollar?c. What does it cost in U.S. dollars
to purchase $C1,000 now?d. How many Canadian dollars will you
receive by entering a six-month forward contract to sell
$1,000?e. What will it cost in Canadian
dollars to purchase...

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...

The Canadian-U.S. spot rate S0C$/$ is quoted as ‘‘C$1.2340/$ Bid
and C$1.2350/$ Ak.’’ The 6-month forward rate F1C$/$ is quoted as
‘‘C$1.2382/$ Bid and C$1.2397/$ Ask.’’ Assume you reside in the
United States. Calculate forward quotes for the Canadian dollar as
an annual percentage premium or discount. Would a FX trader in
Canada get a different answer if asked to calculate the annual
percentage premium or discount on the U.S. dollar for each forward
rate? Why?

Suppose 1 U.S. dollar equals 1.55 Canadian dollars in the spot
market. 6-month Canadian securities have an annualized return of 6%
(and thus a 6-month periodic return of 3%). 6-month U.S. securities
have an annualized return of 6.5% and a periodic return of 3.25%.
If interest rate parity holds, what is the U.S. dollar-Canadian
dollar exchange rate in the 180-day forward market? Enter your
answer rounded to four decimal places. For example, if your answer
is 12.34567 then enter as...

1.Suppose that the spot price of the
Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S.
dollar exchange rate has a volatility of 8% per annum. The
risk-free rates of interest in Canada and the United States are 4%
and 5% per annum, respectively.(6 points)
N(0.0429)=
0.5171
N(-0.0264)
0.4895
N(-0.0429)=
0.4829
N(-0.0264)=
0.5105
N(0.1429)=
0.5568
N(0.0736)
0.5293
N(-0.1429)=
0.4432
N(-0.0736)=
0.4707
N(0.2429)=
0.5960
N(0.1736)
0.5689
N(-0.2429)=
0.4040
N(-0.1736)=
0.4311
a.Calculate the value of a European
call option to buy...

1. a Suppose the nominal exchange rate between
the US dollar and the Canadian dollar is 1.25 (1 US dollar can buy
1.25 Canadian dollars).
If the price of a basket of goods in the USA is 150 USD and in
Canada is 175 CAD, then find out the real exchange rate between the
USA and Canada.
1. b Interpret the value of the real exchange rate
you found in 1. a
2. Again suppose the nominal
exchange rate between the...

The spot rate for the Canadian dollar is $0.988 per C$. The 30
day forward rate is $0.990 per C$. The forward rate for Canadian
dollar contains an annualized ________________ of ________%.
a. discount; 2.42
b. premium; 2.42
c. discount; 4.12
d. premium; 4.12

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 22 seconds ago

asked 5 minutes ago

asked 5 minutes ago

asked 13 minutes ago

asked 19 minutes ago

asked 22 minutes ago

asked 22 minutes ago

asked 36 minutes ago

asked 40 minutes ago

asked 43 minutes ago

asked 51 minutes ago

asked 58 minutes ago