If the Exchange Rate Between the Canadian Dollar and the American

question 50

Essay

If the exchange rate between the Canadian dollar and the American dollar was fixed at 1.30 Canadian dollars per U.S.dollar and investors perceived Canadian bonds to be equal in risk to U.S.bonds, if the U.S.bonds are selling for $1,000 and have a 5 percent interest rate, assuming capital flows freely between the two countries what will be the price and the interest rate of the Canadian bonds?

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Definitions:

Initial Public Offering

An initial selling of shares to the public at large.

Stock Exchange

is a marketplace where securities, such as stocks and bonds, are bought and sold.

Angel Investors

Individuals who provide capital for startups or entrepreneurs, often in exchange for ownership equity or convertible debt.

Venture Capitalists

Investors who provide funding to startups and small businesses with long-term growth potential in exchange for equity.