A year ago, you converted USD 10,000 into CAD at the spot exchange rate at the time of S(t-1 year, USD/CAD) of 0.70 and deposited into a non-interest bearing checking account. Today, the spot exchange rate is S(t, USD/CAD) = 0.80. If you converted your CAD investment back to USD, how many USD would you obtain? What happened to the CAD and the USD?

Now assume that you do not actually get to transact at the above rates. Instead last year, the bank that facilitated the transaction provided a quote of 0.69 - 0.71 USD/CAD, while today the bank quotes you 0.77  - 0.83 USD/CAD.

Accounting for these bid-ask spreads (both last year's as well as now), How many USD would you obtain if you sold your CAD balance?

Answer rating: 100% (QA)

If you converted USD 10000 into CAD at the spot exchange rate of St1 year USDCAD of 070 then you wou... View the full answer