Question
Using Spot and Forward Exchange Rates [L01] Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.11.
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$2.50?
Why might the beer actually sell at a different price in the United States?
Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?
Which currency is expected to appreciate in value?
Which country do you think had a higher interest rates-the United States or Canada? Explain.