During this coming year assuming interest rate parity,a.lyou predict that the percentage change in US-Canadian dollar exchange ratewill beb.) you predict the forward exchange rate will be equal toc) you predict an appreciation of thecurrency.d) you predict à depreciation of thecurrency. Assume that you are a Canadian living in Canada, and have $1,000CDN and you are debating about where toinvest it for one year: in Canada or in the USA. Currently, the market interest rate in Canada (icAN) is 2.70% andin the USA, the market interest rate (jus) is 3.75%. The current exchange rate is $1.3107USD= $1CAD. Thespot exchange rate (R) has US currency in the denominator and Canadian currency in the numerator. Theforward exchange rate (F) is the spot exchange rate one year from now.Using above information, complete the below statements, filling in your final, complete answer in thespace/box provided to the right of the statement. Do not show your work.

Forward exchange rate from a spot exchange rate is calculated by this formula:

During this coming year assuming interest rate parity, a.)you predict that the percentage change in US-Canadian dollar exchange rate will be b.) you predict the forward exchange rate will be equal to c) you predict an appreciation of the currency. d) you predict a depreciation of the currency.

During this coming year assuming interest rate parity, a.)you predict that the percentage change in US-Canadian dollar exchange rate will be b.) you predict the forward exchange rate will be equal to c) you predict an appreciation of the currency. d) you predict a depreciation of the currency.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

During this coming year assuming interest rate parity,
a.lyou predict that the percentage change in US-Canadian dollar exchange rate
will be
b.) you predict the forward exchange rate will be equal to
c) you predict an appreciation of the
currency.
d) you predict à depreciation of the
currency.

Assume that you are a Canadian living in Canada, and have $1,000CDN and you are debating about where to
invest it for one year: in Canada or in the USA. Currently, the market interest rate in Canada (icAN) is 2.70% and
in the USA, the market interest rate (jus) is 3.75%. The current exchange rate is $1.3107USD= $1CAD. The
spot exchange rate (R) has US currency in the denominator and Canadian currency in the numerator. The
forward exchange rate (F) is the spot exchange rate one year from now.
Using above information, complete the below statements, filling in your final, complete answer in the
space/box provided to the right of the statement. Do not show your work.

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Appreciation and depreciation of currency:

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