Interest Rate Parity
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In the spot market, 1 U.S. Dollar equals 1.68 Canadian Dollars. Six month Canadian securities have an annualized return of 12 percent. Six month U.S. securities have an annualized return of 7.5 percent. If interest rate parity holds, what is the U.S. dollar/ Canadian dollar exchange rate in the 180-day forward market?
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Solution Summary
Calculates U.S. dollar/ Canadian dollar exchange rate in the 180-day forward market using interest rate parity condition.
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In the spot market, 1 U.S. Dollar equals 1.68 Canadian Dollars. Six month Canadian securities have an annualized return of 12 percent. Six month U.S. securities have an annualize return of 7.5 percent. If interest rate ...
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