interest rates in US market

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CAD/USD is quoted 1.2237. IF USD interest rate is 3%, CAD interest rate 4%, what is CAD/USD one year forward? And CAD/USD 3M forward?

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Solution Preview

Since the interest rates in U.S. market are lower than Canada market. The money will flow from U.S. to Canada for investment. Therefore, to have interest rate parity, the CAD ...

Solution Summary

A discussion of the forward exchange rates ensues. The details are provided in the solution.

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