Question 4:

Term Ending date Canada Rate U.S rate

0x3 2021-12-20 0.00447 0.00165

0x6 2022-03-22 0.00462 0.00188

0x9 2022-06-21 0.00497 0.00228

0x12 2022-09-20 0.00553 0.0028

0x15 2023-12-20 0,00619 0.00335

0x18 2023-03-23 0.00691 0.00596

0x21 2023-06-123 0.00779 0.00809

0x24 2023-09-22 0.00853 0.00973

(Maximum 1.5 pages) You are a market-maker in the CAD-USD forward market. Today is September 20, 2021, one U.S. dollar buys CAD 1.2764 in the spot market, and the term structure of moneymarket interest rates in the two jurisdictions are provided below. These rates are expressed in decimals

1. (a) Client B expects to receive a USD 50 million payment from a customer on December 20, 2022, and wishes to fix the exchange rate on this transaction. Construct a forward contract that will enable him to eliminate the foreign exchange risk exposure associ- ated with this transaction. Implement the manufacturing process associated with this contract, step-by-step, in the proper sequence, and determine the forward exchange rate which will make this contract valueless today.