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%
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%
Chapter21: International Cash Management
Section: Chapter Questions
Problem 3ST
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Question
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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