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:

Break-even Points

The level of sales at which total revenues equal total costs, resulting in no profit and no loss.

Fixed Expenses

Fixed costs are those that stay the same no matter how much is produced or sold, covering expenses like rental fees, employee salaries, and insurance premiums.

Break-even Sales

The amount of revenue from sales at which a business neither makes a profit nor incurs a loss.

Fixed Expenses

Fixed expenses are costs that do not vary with the level of production or sales, providing stability to a company's budget, such as rent or insurance.