9) A U.S. investor purchased a C$100,000 Canadian dollar CD 6 months ago at an A

Question

9) A U.S. investor purchased a C$100,000 Canadian dollar CD 6 months ago at an APR of 7 percent. The Canadian spot rate was 1.367 C$/U.S.$ when the investment was made. The U.S. dollar cost of the investment was and the total amount of Canadian investment was CS after 6 months. A) $136,700; C$107,000 B) $73,153; C$107,000 C) $73,153; C$103,500 D) $136,700; C$103,500 10) Everything else equal, significant trade deficits should have what effect on a country's exchange rate? A) Trade levels do not affect exchange rates. B) The country's currency should appreciate in value relative to their major trading countries. C) The country's currency should depreciate in value relative to their major trading countries. D) The country's currency will first appreciate, then depreciate over the long term.

Explanation / Answer

9. Spot rate = 1.367 C$ / U.S. $

therefore, the value of C$100,000 in terms of U.S. $ = 100,000 * 1.367 = U.S. $136,700

And, Value of Canadian investment after 6 months in terms of C$ = 100,000 * (1+0.07) = C$107,000

OPTION A

10. Trade Deficit means imports are more than exports. which implies that the demand for its currency is lower and therefore, its price should go down which is depreciation of the currency.

OPTION C

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