Currently the US$1.00 = C$1.10. The US and Canadian nominal interest rates are expected to be 5%

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Currently the US$1.00 = C$1.10. The US and Canadian nominal interest rates are expected to be 5% and 2% respectively for the next year. The forward price is:

1. US $ Forward price =

2. Canadian $ Forward price =

Prove the exchange rate is arbitrage free

Canadian invests C$100 in the US for one year and enters into a forward contract to bring the money back at that time.

3. Invest in the US: Value_us =

4. Invest in Canada: Value_cad =

Related Book For answer-question

Structural Analysis

ISBN: 978-0134610672

10th Edition

Authors: Russell Hibbeler

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Posted Date: Oct 01, 2023 03:59 AM

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Currently the US$1.00 = C$1.10. The US and Canadian nominal interest rates are expected to be 5%

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To calculate the forward prices and demonstrate that the exchange rate is arbitragefree we can use t... View the full answer

Structural Analysis

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