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International Finance: Exchange Rate in the Forward Market

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In the spot market, 1 U.S. dollar equals 1.68 Canadian dollars. Six month Canadian securities have an annual return of 12%. Six month U.S. securities have an annualized return of 7.5%. 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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Canadian: 12% / 2 = 6% because six months is one-halve of a 360-day year.
U.S.: 7.5% / 2 = ...

Solution Summary

This solution is comprised of exchange rate calculation. The exchange rate in the forward market is determined.

$2.19