1. Assume a risk-free asset in the U.S. is currently yielding 4.1%, the Canadian risk-free asset is yielding 3.7%, and the current spot rate is C$1.2633. What is the approximate three-year forward rate (F3) if interest rate parity (IRP) holds? A) C$1.2482 B) C$1.2684 C) C$1.2541 D) C$1.2785 E) C$1.2582
Added by Shane L.
Step 1
S. risk-free rate) - \( r_f \) = foreign interest rate (Canadian risk-free rate) - \( t \) = time in years Given: - \( S = 1.2633 \) C$/US$ - \( r_d = 4.1\% = 0.041 \) - \( r_f = 3.7\% = 0.037 \) - \( t = 3 \) years Now, let's calculate the forward rate step by Show more…
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