Assume the interest rate in Britain is 7%, the interest rate in Canada is 4%, Rt=3, and Rt+1=3.3. Calculate the return in Canadian $ of investing in Britain for 1 year. In addition, show whether the interest rate parity condition holds. Finally, what will be the effects on the balance of payments and the exchange rate?

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To calculate the return in Canadian dollars of investing in Britain for 1 year we need to use the fo... View the full answer