If There Is a 4% One-Year Forward Premium on the US

question 18

Multiple Choice

If there is a 4% one-year forward premium on the US dollar relative to the Canadian dollar,this implies

• A) Canadian interest rates on one year accounts are approximately 4 percentage points above US rates
• B) The US dollar is expected to be worth C$1.04 in one year from now
• C) Short term interest rates are about 4% lower in the US than one-year rates
• D) US bonds are roughly 4% riskier than Canadian bonds
• E) The US dollar is expected to depreciate by 4% over the next 12 months

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