Suppose the spot exchange rate for the Canadian dollar is Can$1.10 and the six-m

Question

Suppose the spot exchange rate for the Canadian dollar is Can$1.10 and the six-month forward rate is Can$1.12.

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

Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$3.29? (Enter your answer as directed, but do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

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

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

Suppose the spot exchange rate for the Canadian dollar is Can$1.10 and the six-month forward rate is Can$1.12.

Explanation / Answer

a. USD is worth more since 1.1 CAD is used to buy 1 USD

b. 1.1 CAN 1 USD

therefore 3.29 CAN = 1*3.29/1.1 = 2.99 USD. therefore the beer is worth 2.99 USD

c. The USD is selling at a premium to thr CAN

d. Since the 1.12 CAN is used to buy 1 USD instead of 1.1 CAN, the USD is expected to appreciate

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