Question
The current USD/CAD exchange rate is 1.25 CAD per USD. If the continuously compounded annual interest...
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The current USD/CAD exchange rate is 1.25 CAD per USD. If the continuously compounded annual interest rate is 0.5% in U.S. and 1% in Canada, what is the forward exchange rate in units of CAD per a unit of USD in 3 years from now?
A. 1.21 B. 1.23 C. 1.27 D. 1.29 E. 1.45
Homework Answers
Answer #1
Calculate the forward rate as follows:
Therefore, the forward rate is 1.27 CAD.
Formulas:
NOTE: EXP is the function used in excel to calculate the continuous compounding.
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