Multiple Choice
Suppose in the spot market 1 U.S.dollar equals 1.75 Canadian dollars.6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%) .6-month U.S.securities have an annualized return of 6.5% and a periodic return of 3.25%.If interest rate parity holds,what is the U.S.dollar-Canadian dollar exchange rate in the 180-day forward market? In other words,how many Canadian dollars are required to purchase one U.S.dollar in the 180-day forward market?
A) 1.2727
B) 1.4141
C) 1.5712
D) 1.7458
E) 1.9203
Correct Answer:
Verified
Correct Answer:
Verified
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