The Current Spot Rate Is C$1

question 67

Multiple Choice

The current spot rate is C$1.400 and the one-year forward rate is C$1.344.The nominal risk-free rate in Canada is 4 percent while it is 8 percent in the U.S.Using covered interest arbitrage, you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.

• A)$.0000
• B)$.0033
• C)$.0040
• D)$.0833
• E)$.0840

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Definitions:

Downward Sloping

Describes a trend or graph line that decreases in value as it moves from left to right, often used in finance to describe declining interest rates or stock prices.

Upward Sloping

Describes a line on a graph that represents an increase in a variable over time or another metric.

Yield Curve

The yield curve is a graphical representation of the interest rates on debt for a range of maturities, showing the relationship between interest rates and the time to maturity.

Semiannually

Occurring twice a year; typically used in finance to describe payments, compounding interest, or other events that happen every six months.