Suppose that the US interest rate is 10% and the Canadian interest rate is 10%. If...
Suppose that the US interest rate is 10% and the Canadian interest rate is 10%. If the US interest rate rises to 12%, what happens according to covered interest rate parity? The forward rate, quoted as US $ per Canadian $, will (rise, fall) and the spot rate will (rise, fall).
Homework Answers
As per Interest Rate Parity, the rise in interest rates in one country is offset by the changes in exchange rates
Since interest rates have risen in US, The forward rate, quoted as US $ per Canadian $, will FALL
and the spot rate will RISE
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Suppose that the US interest rate is 10% and the Canadian
interest rate is 10%. If...
2. Interest Rate Parity: Suppose the US dollar interest rate and the Canadian dollà (a) Suppose...
2. Interest Rate Parity: Suppose the US dollar interest rate and the Canadian dollà (a) Suppose the expected future exchange rate (BeADIUSp) is fixed at USD 1.05 for 1 CAD, (b) Suppose ECAD/USD remains the same while the US interest rate decreases to 8%. If (RusD) interest rate (RCA) are the same, 10% per year what is the equilibrium current exchange rate, ECADIUSD the Canadian interest rate remains the same as before, what is the new equilibrium ECAD/USD?
3. Assume the following information: Quoted Price Spot rate of Canadian dollar $0.81 90day forward rate of Canadian...
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You, as a U.S. investor, find the current annual interest rate in the U.S. is 3%...
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(a)Assume that the one-year interest rate is 6% in New Zealand and 10% in the US....
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(a)Assume that the one-year interest rate is 6% in New Zealand and 10% in the US. The spot rate o...
(a)Assume that the one-year interest rate is 6% in New Zealand and 10% in the US. The spot rate of the NZ$ is $0.50 while the forward rate is $0.54. Would covered interest arbitrage be feasible for a US investor who is willing to invest $1,000,000 to exploit the opportunity of differences in interest rates? If the investment is worthwhile, find the profit the investor could earn in a year. (b) Explain the realignment process that would eventually produce interest...
Suppose a Canadian agent (investor) with C$1.0 million is choosing between bank deposits denominated in either euro or Canadian dollars.
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Question 10 (1 point) Saved The Spot Rate (SO) for Mexican Pesos (MXP) for US dollars...
Question 10 (1 point) Saved The Spot Rate (SO) for Mexican Pesos (MXP) for US dollars (USD) is MXP 20.3 to USD 1. The riskless rate of interest in the US for 3 months (RUS) is 0.25%. The riskness rate in Mexico (Foreign Country) is 1.6%. According to the Covered Interest Rate Parity relationship, what should be the 3- month Forward rate (F) of MXP for USD? (Note: Your answer should be the number of MXP for USD 1 in...
2. Interest Rate Parity: Suppose the US dollar interest rate and the Canadian dollà (a) Suppose the expected future exchange rate (BeADIUSp) is fixed at USD 1.05 for 1 CAD, (b) Suppose ECAD/USD remains the same while the US interest rate decreases to 8%. If (RusD) interest rate (RCA) are the same, 10% per year what is the equilibrium current exchange rate, ECADIUSD the Canadian interest rate remains the same as before, what is the new equilibrium ECAD/USD?
3. Assume the following information: Quoted Price Spot rate of Canadian dollar $0.81 90day forward rate of Canadian dollar $0.79 90day Canadian interest rate 4% (per 90 days) 90day U.S. interest rate 2.5% (per 90 days) a) Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) b) The forward rate should rise, True or False?
The 1-year interest rates on Canadian dollar and U.K. pound are 2% and 5 % respectively. If the current spot rate is 2 Canadian dollar per pound, then the 1-year forward rate (F Canadian $/£) implied by the covered interest rate parity approximation would be Select one: o a. 0.97 O b. 1.94 O c. 2.06 d. 2.15 If the 12-month interest rates for the United States and Germany are both 1%, and 1$= 1.20 € in the spot market,...
You, as a U.S. investor, find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot exchange rate for Canadian dollar is $0.95 per Canadian dollar, the 90-day Canadian dollar forward exchange rate is $0.928 per Canadian dollar. Based on covered interest rate parity theory, what is the correct 90-day forward rate of the Canadian dollar? Is there any arbitrage opportunity to trade the forward contract on Canadian dollars?
Question 10 (1 point) Saved The Spot Rate (SO) for Mexican Pesos (MXP) for US dollars (USD) is MXP 20.3 to USD 1. The riskless rate of interest in the US for 3 months (RUS) is 0.25%. The riskness rate in Mexico (Foreign Country) is 1.6%. According to the Covered Interest Rate Parity relationship, what should be the 3- month Forward rate (F) of MXP for USD? (Note: Your answer should be the number of MXP for USD 1 in...
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