Suppose That the Risk-Free Rates in the United States and in Canada

question 57

Multiple Choice

Suppose that the risk-free rates in the United States and in Canada are 5% and 3%, respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$. What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.

• A) $1.00/C$
• B) $0.82/C$
• C) $0.88/C$
• D) $0.78/C$
• E) $1.22/C$

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Definitions:

Paranasal Sinuses

Air-filled spaces located within the bones of the skull and face, connected to the nasal cavity, that help humidify and filter air.

Cilia

Microscopic, hair-like structures that protrude from the surface of many cells, involved in movement and sensory functions.

Pharynx

The muscular tube that connects the mouth and nasal passages with the esophagus.

Tidal Volume

The amount of air that is inhaled or exhaled in a normal breath under resting conditions, important in respiratory physiology.