Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$):   Spot Exchange Rate One-Year Forward Exchange Rate Canadian dollar (U.S. dollar/Canadian dollar) 0.8842 0.9001   The current one-year interest rate on U.S. Treasury securities is 6.89%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 4.75%   4.00%   5.00%   5.75%

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter21: International Cash Management
Section: Chapter Questions
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Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$):
 
Spot Exchange Rate
One-Year Forward
Exchange Rate
Canadian dollar (U.S. dollar/Canadian dollar) 0.8842 0.9001
 
The current one-year interest rate on U.S. Treasury securities is 6.89%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk?
4.75%
 
4.00%
 
5.00%
 
5.75%
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