Assume the Spot Rate on the Canadian Dollar Is C$0

question 71

Multiple Choice

Assume the spot rate on the Canadian dollar is C$0.9872. The risk-free nominal rate in the U.S. is 5.4 percent while it is only 3.8 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?

• A)C$0.9255
• B)C$0.9308
• C)C$1.0267
• D)C$1.0519
• E)C$1.0597

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Definitions:

Face Value

The nominal or initial value stated on financial instruments like bonds or stock certificates, not necessarily equal to the market value.

Ontario Securities Commission

A regulatory body in Ontario, Canada, responsible for overseeing the capital markets within the province.

Bond Rating Services

Companies that evaluate the creditworthiness of both debt securities and their issuers, providing ratings that reflect the risk of default.

Dominion

A term that historically referred to a semi-autonomous polity that was part of the British Empire, now mostly used in the context of Canada.