2. Suppose the spot exchange rate is 1.29 CAD/USD and the six-month forward ex- change rate...
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2. Suppose the spot exchange rate is 1.29 CAD/USD and the six-month forward ex- change rate is 1.28 CAD/USD. (a) Assuming absolute Purchasing Power Parity holds, what is the cost of a Keith Beer in the u.s. if its price in Canada is 2.50? Why might the beer actually sell at a different price in the U.S.? (b) Is the USD selling at a premium or a discount relative to CAD? (c) Which currency is expected to depreciate in value? (d) Which country do you think has higher interest rates - U.S. or Canada? 2. Suppose the spot exchange rate is 1.29 CAD/USD and the six-month forward ex- change rate is 1.28 CAD/USD. (a) Assuming absolute Purchasing Power Parity holds, what is the cost of a Keith Beer in the u.s. if its price in Canada is 2.50? Why might the beer actually sell at a different price in the U.S.? (b) Is the USD selling at a premium or a discount relative to CAD? (c) Which currency is expected to depreciate in value? (d) Which country do you think has higher interest rates - U.S. or Canada?
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a Spot exchange rate 1 129 CADAssuming absolute purchasing power par... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
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