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Problems to Practice for Chapter 18 Problem 18.1 Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month rate is CanS1.14 a. Which is worth more, a US dollar or a Canadian dollar? b. Assuming absolute PPP holds, what is the cost in the US of an Eklhead beer if the price in Canda is c. d. e. Can$2.49? Why might the beer actually sell at a different price in the US? Is the US dollar selling at a premium or a discount relative to the Canadian collar? Which currency is expected to appreciate in value? Which country do you think has higher interest rates, the US or Canada? Explain. Problem 18.3 for the yen are 1 13, 21 and 112.63 per dollar. Is the Suppose the spot rate and the I-year forward rates yen expected to get w tion rates in i stronger or weaker? Explain. What would you estimate is the difference between inflation rates in the US and Japan? Problem 18.4 The US treasury rate bill rate (risk-free) is 19, exchange rate between the US and Canada is 1.22 (Can/S): a) what is the US spot rate? b) If the US increase its rate from 1% to 1.5%, find the new spot rate. c) Compare the spot rate before the US the US S when interest rates in the US increase? Canada has the risk free rate at 2%. If the forward increases interest rates and after. What do you expect to happen to