ZuoTi.Pro
Question

Suppose the spot exchange rate for the Canadian dollar is C$1.09 and the six-month forward rate...

Suppose the spot exchange rate for the Canadian dollar is C$1.09 and the six-month forward rate is C$1.12. Assuming absolute PPP holds, what is the current cost in the United States of a hamburger if the price in Canada of an equivalent burgerin Canada is C$4.75?

$5.39

$5.18

$4.36

$5.02

$4.51

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

Homework Answers

Answer #1

Answer is $4.36

SO GIVEN is

at present

$1=c$1.09

so at PPP we know price parity will exist at this rate

so if burger in canada is presently C$4.75

We use unitary method to calculate the cost of burger in US

so we have C$4.75*(1/C$1.09) = $4.36

0 0
Add a comment
Know the answer?
Add Answer to:
Suppose the spot exchange rate for the Canadian dollar is C$1.09 and the six-month forward rate...
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

  • Suppose the spot exchange rate for the Canadian dollar is Can$1.07 and the six-month forward rate...

    Suppose the spot exchange rate for the Canadian dollar is Can$1.07 and the six-month forward rate is Can$1.09. a. Which is worth more, a U.S. dollar or a Canadian dollar? O U.S. dollar 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$2.60? (Round your answer to 3 decimal places, e.g., 32.161.) Cost in U.S. dollars c. Is the U.S. dollar selling at a...

  • Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate...

    Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.17. (Enter your answers as directed, but do not round intermediate calculations.) 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$2.49? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)...

  • question 3 and 4(just part C) Thank you. 3. Forward Exchange Rates If the $/€ spot...

    question 3 and 4(just part C) Thank you. 3. Forward Exchange Rates If the $/€ spot rate is $1.14/€ and three-month fc $1.15/€? Is the dollar selling at a premium or a discount? Explain. 4. Using Spot and Forward Exchange Rates Suppose the spot exchange rate for the South African rand is R15/£ and the six-month forward rate is R16/£. (a) Which is worth more, the British pound or the South African rand? (b) Assuming absolute PPP holds, what is...

  • Predict whether the following factors would cause the exchange rate of the Canadian dollar to strengthen...

    Predict whether the following factors would cause the exchange rate of the Canadian dollar to strengthen or to weaken. Sketch a supply and demand diagram of the exchange rate market for the Canadian dollar to illustrate your answer. Interest rates go up in the United States Financial investors expect the Canadian dollar to depreciate in the next few months Canadian inflation falls relative to other countries Interest rates fall in Canada The Canadian dollar is below the PPP exchange rate

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

    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 in...

  • Suppose that the current spot exchange rate is 0.80/$ and the three-month forward exchange rate i...

    Suppose that the current spot exchange rate is 0.80/$ and the three-month forward exchange rate is 0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or 800,000. assuming that you want to realize profit in terms of U.S. dollars. The size of your arbitrage profit is S rounded) Suppose that the current spot exchange rate is 0.80/$ and the three-month...

  • 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...

  • If the spot exchange rate for the US/Canadian dollar rate was 1.0150 in 2011 and risk-free...

    If the spot exchange rate for the US/Canadian dollar rate was 1.0150 in 2011 and risk-free rate was 3.5% in Canada and 2.5% in US, what would be the expected exchange rate in 2013? A. -$0.9955 B. $0.9955 C. $1.0349 D. -$1.0349 E. none

  • 4. Currently, the spot exchange rate is $0.85/AS and the one-year forward exchange rate is $0.81/A$....

    4. Currently, the spot exchange rate is $0.85/AS and the one-year forward exchange rate is $0.81/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,176,471, which is equivalent to $1,000,0oo at the current spot rate. a. Determine if IRP is holding between Australia and the United States. b. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. Explain how IRP...

  • The 1-year forward rate of the Canadian dollar contains a 5.01% discount. Today's spot rate of...

    The 1-year forward rate of the Canadian dollar contains a 5.01% discount. Today's spot rate of the Canadian dollar is $0.7255. Use the forward rate model to predict the exchange rate for one year ahead. Round to four decimals. Include the price currency. Example 1.1234($) or 1.1234(CS)

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