Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$): Spot Exchange Rate One-Year Forward Exchange Rate Canadian dollar (U.S. dollar/Canadian dollar) 0.8842 0.9001 The current one-year interest rate on U.S. Treasury securities is 6.89%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 4.75% 4.00% 5.00% 5.75%

Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$): Spot Exchange Rate One-Year Forward Exchange Rate Canadian dollar (U.S. dollar/Canadian dollar) 0.8842 0.9001 The current one-year interest rate on U.S. Treasury securities is 6.89%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 4.75% 4.00% 5.00% 5.75%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter21: International Cash Management

Section: Chapter Questions

Problem 3ST

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Question

Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$):

	Spot Exchange Rate	One-Year Forward
Exchange Rate
Canadian dollar (U.S. dollar/Canadian dollar)	0.8842	0.9001

The current one-year interest rate on U.S. Treasury securities is 6.89%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk?

4.75%

4.00%

5.00%

5.75%

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