Question

Interest rates are 5% in the U.S. and 3.25% in Canada. “Jacque the carry trader” borrows C$7,500,000 to execute a carry trade. At the start, the exchange rate is C$1.1300/$. After one year, the exchange rate is C$1.1150/$.

A. What is Jacque’s C$ profit or loss over the year?

B. When Jacque starts this trade, he is hoping that the Canadian dollar doesn’t ______________. (a simple “appreciation” or “depreciation” is all we need)

C. When Jacque starts this trade, he is hoping that the USD doesn’t ______________. (a simple “appreciation” or “depreciation” is all we need)

D. What is the BEEX in one year? (put in terms of CAD/USD) Probably need to carry the answer out to 4 decimal places.

Answer 1