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Scenario Current Interest rate aurrent Interest rate Current exchange Expected exchange Iceland -Canada rate rate in 1 year 4% 100 kr $1 100 kr $1 100 kr $1 100 kr $1 102 kr = $1 103 kr = $1 103 kr $1 97 kr = $1 2% %3D 3% 6% %3D 5% 2% %3D 4% 7% %3D Suppose that you want to invest $100 000 in 1 year bonds. You are looking for the highest return on your investment and do not care whether you invest in Canada or lceland, but as a Canadian resident, you want your investment return to be in Canadian dollars. The attached table lists four scenarios, each showing the current interest rate for one-year government bonds in Canada and Iceland, the current exchange rate between the dollar and the Icelandic Krona, and the expected exchange rate in one year. Other than the interest rates, you assume the bonds from each country to be ldentical. In which scenario(s) does interest rate parity hold? Select all that apply.

Scenario Current Interest rate aurrent Interest rate Current exchange Expected exchange Iceland -Canada rate rate in 1 year 4% 100 kr $1 100 kr $1 100 kr $1 100 kr $1 102 kr = $1 103 kr = $1 103 kr $1 97 kr = $1 2% %3D 3% 6% %3D 5% 2% %3D 4% 7% %3D Suppose that you want to invest $100 000 in 1 year bonds. You are looking for the highest return on your investment and do not care whether you invest in Canada or lceland, but as a Canadian resident, you want your investment return to be in Canadian dollars. The attached table lists four scenarios, each showing the current interest rate for one-year government bonds in Canada and Iceland, the current exchange rate between the dollar and the Icelandic Krona, and the expected exchange rate in one year. Other than the interest rates, you assume the bonds from each country to be ldentical. In which scenario(s) does interest rate parity hold? Select all that apply.

Essentials Of Investments
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
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Scenarlo Current Interest rate Current Interest rate Current exchange Expected exchange rate in 1 year 102 kr = $1 103 kr $1 103 kr $1 97 kr $1 -Canada Iceland rate 100 kr $1 100 kr $1 100 kr $1 100 kr = $1 2% 4% %3D 3% 6% %3! C. 5% 2% 4% 7% Suppose that you want to invest $100 000 in 1 year bonds. You are looking for the highest return on your investment and do not care whether you invest in Canada or Iceland, but as a Canadian resident, you want your investment return to be in Canadian dollars. The attached table lists four scenarios, each showing the current interest rate for one-year government bonds in Canada and Iceland, the current exchange rate between the dollar and the Icelandic Krona, and the expected exchange rate in one year. Other than the interest rates, you assume the bonds from each country to be identical. In which scenario(s) does interest rate parity hold? Select all that apply. Select all that apply: cross out a. A cross out b. B cross out c. C cross out d. D O O
Transcribed Image Text:Scenarlo Current Interest rate Current Interest rate Current exchange Expected exchange rate in 1 year 102 kr = $1 103 kr $1 103 kr $1 97 kr $1 -Canada Iceland rate 100 kr $1 100 kr $1 100 kr $1 100 kr = $1 2% 4% %3D 3% 6% %3! C. 5% 2% 4% 7% Suppose that you want to invest $100 000 in 1 year bonds. You are looking for the highest return on your investment and do not care whether you invest in Canada or Iceland, but as a Canadian resident, you want your investment return to be in Canadian dollars. The attached table lists four scenarios, each showing the current interest rate for one-year government bonds in Canada and Iceland, the current exchange rate between the dollar and the Icelandic Krona, and the expected exchange rate in one year. Other than the interest rates, you assume the bonds from each country to be identical. In which scenario(s) does interest rate parity hold? Select all that apply. Select all that apply: cross out a. A cross out b. B cross out c. C cross out d. D O O
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