The Interest Rate on a 1-Year Canadian Security Is 8

question 30

Multiple Choice

The interest rate on a 1-year Canadian security is 8%. The current exchange rate is C$ = US $0.78. The 1-year forward rate is C$ = US $0.76. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is

• A) 3.59%.
• B) 4.00%.
• C) 5.23%.
• D) 8.46%.
• E) None of the options are correct.

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Definitions:

Volleyball

A team sport where two teams, typically of six players each, compete to ground a ball on the other team's court under organized rules.

Labor-Leisure Tradeoff

The balance individuals must find between time spent working, which earns income, and time spent enjoying leisure activities.

Substitution Effect

The change in consumption resulting from a change in the relative prices of goods, prompting consumers to replace more expensive items with less costly alternatives.

Income Effect

The shift in income for an individual or the economy, and its influence on the demand for a specific good or service.