You read in a newspaper that the nominal interest rate is 12 percent per year in Canada
Question:
a. Using the Fisher equation (discussed in Chapter 4), what can you infer about expected inflation in Canada and in the United States?
b. What can you infer about the expected change in the exchange rate between the Canadian dollar and the U.S. dollar?
c. A friend proposes a get-rich-quick scheme: borrow from a U.S. bank at 8 percent, deposit the money in a Canadian bank at 12 percent, and make a 4 percent profit. What’s wrong with this scheme? Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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Related Book For
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth
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