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Using Spot and Forward Exchange Rates Suppose the spot exchange rate for the Canadian dollar is Can$109 and the six month forward rate is Can$114 a Which is worth more a US dollar or a

Using Spot and Forward Exchange Rates. Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.14.

a. Which is worth more, a U.S. dollar or a Canadian dollar?

b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.49? Why might the beer actually sell at a different price in the United States?

c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

d. Which currency is expected to appreciate in value?

e. Which country do you think has higher interest rates—the United States or Canada? Explain.

May 25 2020 View more View Less

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