Homework Answers
| Forward rate= USD per Canadian dollar * (1+Interest rate in USD)/(1+Interest rate in Canada) | |||||
| 0.8935= | =0.8798*(1+7.77%)/(1+forward rate in Canada) | ||||
| (1+forward rate in Canada)= | =0.8798*(1+7.77%)/0.8935 | ||||
| (1+forward rate in Canada)= | 1.06 | ||||
| The forward rate in Canada= | 6.12% | ||||
| Hence the first option is correct. | |||||
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1. A HIGHER/ LOWER OR SAME
2. DECREASES. APPRECIATES
3. DECREASES. APPRECIATES
4.
Multinational Financial Management: Interest Rate Parity The general relationship between spot and forward exchange rates is specified by a concept called interest rate parity. It specifies that investors should expect to earn (-Select- return in all countries after adjusting for risk. The relationship is expressed in the following equation: Forward exchange rate – 1+th Spot exchange rate 1+rf Both the forward and spot rates are expressed in...
A) DECREASES /
APPRECIATES
B) DECREASES / APPRECIATES
C) CANNIBALIZATION / ARBITRAGE / FLOTATION / CONVERSION
2. 2: Multinational Financial Management: Interest Rate Parity The general relationship between spot and forward exchange rates is specified by a concept called interest rate parity. It specifies that investors should expect to earn the same return in all countries after adjusting for risk. The relationship is expressed in the following equation: (1+1) Forward exchange rate Spot exchange rate Both the forward and spot...
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