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?© BrainMass Inc. brainmass.com March 21, 2019, 6:12 pm ad1c9bdddf
Canadian: 12% / 2 = 6% because six months is one-halve of a 360-day year.
U.S.: 7.5% / 2 = ...
This solution is comprised of exchange rate calculation. The exchange rate in the forward market is determined.