Question: question is shown below (b) (4 pts) Table 7 shows the prices of several CAD-USD futures contracts and USD- CAD forward exchange rates for different

question is shown below

(b) (4 pts) Table 7 shows the prices of several CAD-USD futures contracts and USD- CAD forward exchange rates for different maturities on 17 May 2021. For each of the futures and forward contracts, calculate the implied continuously compounded interest rate differentials (USD risk-free rate minus CAD risk-free rate, per annum). Table 7: CAD-USD futures prices and USD-CAD forward exchange rate on 17 May 2021. CAD-USD futures USD-CAD forward Contract month Price Term Rate Jun '21 0.74657 IM 1.34146 Jul '21 0.74712 2M 1.34047 Aug '21 0.74742 3M 1.33994 Nov '21 0.74812 6M 1.33868 Feb '22 0.74892 9M 1.33726 May '22 0.74937 12M 1.33645 (c) (2 pt) According to data in Table 7, is the CAD trading at a forward premium or a discount against USD? (d) (4 pts) To hedge using the CAD-USD May 2022 futures contract, should the company take a long or a short position? Estimate the number of contracts needed. (e) (4 pts) Identify two main factors that make the hedging strategy with CAD-USD futures imperfect

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