Suppose in the Spot Market 1 U

question 6

Multiple Choice

Suppose in the spot market 1 U.S.dollar equals 1.5500 Canadian dollars.6-month Canadian securities have an annualized return of 6.00% (and thus a 6-month periodic return of 3.00%) .6-month U.S.securities have an annualized return of 6.50% and a periodic return of 3.25%.If interest rate parity holds,what is the U.S.dollar-Canadian dollar exchange rate in the 180-day forward market? In other words,how many Canadian dollars are required to purchase one U.S.dollar in the 180-day forward market? Do not round the intermediate calculations and round the final answer to four decimal places.

• A) 1.9019
• B) 1.5308
• C) 1.2525
• D) 1.5462
• E) 1.1597

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