The interest rate on one-year Canadian government securities is 6 percent and ex

Question

The interest rate on one-year Canadian government securities is 6 percent and expected inflation rate for the coming year is 2 percent. The U.S. one-year government security instrument interest rate is 4 percent with expected inflation for this coming year of 1 percent. The exchange rate for the US$/Cdn$ as of mid-June 2008 is US $1=Cdn $1.02296 (US$100=Cdn$102.27). What is the spot exchange rate a year from now? What is the forward exchange rate a year from now? Explain the logic of your answers.

Explanation / Answer

The expected inflation rate is 11.51%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.