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Expected exchange rate

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The spot rate on the Canadian dollar is 1.23. Interest rates in Canada are expected to average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the expected exchange rate three years from now?

a) C$1.2760
b) C$1.2635
c) C$1.2483
d) C$1.2108

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The solution computes the expected exchange rate for Canadian dollar three years from now.

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