Suppose the Interest Parity Condition Holds

question 24

Essay

Suppose the interest parity condition holds.Also assume that the one-year interest rate in the United States is 6% and that the one-year interest rate in Canada is 5%.What does this imply about the current versus future expected exchange rate (for the U.S.and Canadian dollars)? Explain.

---

Definitions:

Rate of Yield

A financial ratio that measures the annual return on an investment expressed as a percentage.

Commission Charges

Fees that are paid to an agent or company for facilitating a transaction, often calculated as a percentage of the transaction value.

Total Cost

The full amount of expenses incurred for producing or acquiring a product or service.

Commission Charges

Fees paid to an agent or company for facilitating a transaction, often a percentage of the transaction value.