The Current Spot Rate Is C$1

question 84

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:

Price Discrimination

A pricing strategy where a seller charges different prices for the same product or service to different consumers, based on market segments, capacity to pay, or purchasing contexts.

Monopoly Power

The ability of a monopolist to significantly control market price or exclude competition in a particular market.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices to different buyers.

Elasticities of Demand

Measures of how responsive the quantity demanded of a good or service is to a change in its price, income levels, or other factors.