Problem

IRP and Changes in the Forward Rate Assume that interest rate parity exists. As of this...

IRP and Changes in the Forward Rate Assume that interest rate parity exists. As of this morning, the 1-month interest rate in Canada was lower than the 1-month interest rate in the United States. Assume that as a result of the Fed’s monetary policy this afternoon, the 1-month interest rate in the United States declined this afternoon, but was still higher than the Canadian 1-month interest rate. The 1-month interest rate in Canada remained unchanged. Based on the information, the forward rate of the Canadian dollar exhibited a ___ [discount or premium] this morning that ___ [increased or decreased] this afternoon. Explain.

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