a. The spot price of the U.S. dollar is currently C $ 1.35/US $. If the risk-free
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a. The spot price of the U.S. dollar is currently C $ 1.35/US $. If the risk-free interest rate on 1-year government bonds is 4% in Canada and 6% in the United States, what must be the forward price of the U.S. dollar for delivery 1 year from now?
b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to (a)? Give a numerical example.
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Related Book For
Investments
ISBN: 9781259271939
9th Canadian Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus, Lorne Switzer, Maureen Stapleton, Dana Boyko, Christine Panasian
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