ZuoTi.Pro
Question

The 1-year interest rates on Canadian dollar and U.K. pound are 2% and 5 % respectively. If the current spot rate is 2 CanadiIf the 12-month interest rates for the United States and Germany are both 1%, and 1$= 1.20 € in the spot market, then what woIn developed countries, tariffs on raw materials tend to be _ Select one: o a. lower than on manufactured goods b. equal to t

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

b. 1.94

Fcanadian $/pound = Spot rate in Canadian $/pound *( 1+ icanada - iUK)

Fcanadian $/pound = 2*(1 + 0.02 - 0.05)

Fcanadian $/pound = 1.94

a. 1.20 euro/$

Feuro/ $ = Spot rate in Euro/$ *( 1+ iGERMANY - iUS)

Feuro/ $ = 1.2*(1+ 0.01 - 0.01)

Feuro/ $ = 1.20

a. lower than on manufactured goods

0 0
Add a comment
Know the answer?
Add Answer to:
The 1-year interest rates on Canadian dollar and U.K. pound are 2% and 5 % respectively....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 1. Assume the following information: Spot rate of Canadian dollar : $.80 90-day forward rate of Canadian dollar : $.79 9...

    1. Assume the following information: Spot rate of Canadian dollar : $.80 90-day forward rate of Canadian dollar : $.79 90-day Canadian interest rate : 4% 90-day U.S. interest rate : 2.5% a) What would be the return to a U.S. investor who used covered interest arbitrage from investing in Canada? (assume the investor invests $1,000,000). Does the return exceed the return from investing in the U.S. over the 90-day period? Is it worthwhile for the U.S. investor to invest...

  • Canadian Dollar: Spot and Forward (C$/$) Euro: Spot and forward ($/€) Mid rates Bid Ask Mid...

    Canadian Dollar: Spot and Forward (C$/$) Euro: Spot and forward ($/€) Mid rates Bid Ask Mid rates Bid Ask spot 1.2645 1.2639 1.2651 1.2390 1.2387 1.2393 Forward 3-week 23 27 19 15 3-month 135 128 155 146 7a. How much $100 will cost you in Canadian Dollar and Euro? (Hint: you are buying USD). 7b. What are 3-week and 3-month forward bid and ask rate for Canadian Dollar and Euro? 7c. Based on information above, what are the profit margin...

  • Current spot exchange rate $0.60 per £ Forward foreign exchange rate $0.605 per £ Annualized interest...

    Current spot exchange rate $0.60 per £ Forward foreign exchange rate $0.605 per £ Annualized interest rate on a 30-day dollar-denominated asset 15% Annualized interest rate on a 30-day pound-denominated asset 7% 1. Does Covered Interest Parity hold? 2. If American investor invested in the U.K. What is the covered interest differential for the investor?

  • The one-year interest rate in the U.K. is 5.0 percent. The spot exchange rate is $1.40/£...

    The one-year interest rate in the U.K. is 5.0 percent. The spot exchange rate is $1.40/£ and the one-year forward exchange rate is $1.35/£. Assuming interest rate parity, the one-year U.S. interest rate is: Multiple Choice • None of the options. 0 0 0 0

  • Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the...

    Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward (one year) value of the € is F$/€ = 1$/€ and that the spot exchange rate is E$/€ = 0.75$/€. Please answer the following questions by explaining all steps of your analysis: Does the covered interest parity condition hold? Why or why not? How could you make a riskless profit without any money tied up assuming that there are no transaction costs in...

  • Interest rates in the United States are 1% and in Canada they are currently at 2%....

    Interest rates in the United States are 1% and in Canada they are currently at 2%. The USD/CAD spot rate is 0.9881. You are offered a 12-month forward rate of 1.01. • Calculate the theoretical forward rate implied by Interest Rate Parity. • Is the forward contract relatively under-valued or overvalued? • What is the percentage return from engaging in Covered Interest Arbitrage? (Calculate as a percentage of your initial borrowing, accurate to 4 decimal places)

  • Suppose a Canadian agent (investor) with C$1.0 million is choosing between bank deposits denominated in either euro or Canadian dollars.

    2.       Suppose a Canadian agent (investor) with C$1.0 million is choosing between bank deposits denominated in either euro or Canadian dollars.  Also suppose that the (one-year) interest rate paid on the C$ deposits is 1% (0.01) and on the euro deposit is 2% (0.02), the (one-year) forward C$-EURO exchange rate (FC$/€ ) is 1.60 and the current spot rate (EC$/€ ) is 1.65.  Based on this information, answer the following questions.       (a)     What is the forward spread? Is the...

  • 30. Suppose that the spot rate on the Canadian dollar is C$1.40/USs. The risk-free nomin in...

    30. Suppose that the spot rate on the Canadian dollar is C$1.40/USs. The risk-free nomin in the U.S. is 8 percent while it is only 4 percent in Canada. Which one of the follo one-year forward rates best establishes the approximate interest rate parity conditio A. CS1.278 B. C$1.344 C. CS1.355 D. CS1.456 E. C$1.512

  • The spot rate for the British pound is £7247 = $1 and the Canadian dollar is...

    The spot rate for the British pound is £7247 = $1 and the Canadian dollar is Can$1.1510 = $1. What is the Can$ cross-rate? Multiple Choice o £16765/Cans £15882/Cans 4.5812Cans 5.7870/Cans 5.6296/Cans

  • The US 1-year interest rate is 5% per year and the 1-year UK interest rate is...

    The US 1-year interest rate is 5% per year and the 1-year UK interest rate is 3%. The spot rate is $1.55/pound and the 1-year forward rate is $1.60/pound. The optimal strategy is for an investor to borrow pounds because the pound is at a forward premium The optimal strategy is for an investor to borrow dollars Interest Rate Parity holds, so there is no advantage to borrowing dollars or pounds The optimal strategy is to borrow pounds because UK...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT