Question - The following are the expected interest rates and inflation rates in Canada and Britain respectively over next six months
|
Country
|
Interest Rate
|
Inflation Rate
|
|
Canada
|
4%
|
2%
|
|
Britain
|
7%
|
4%
|
The spot rate between Canadian dollar (C$) and Great British pound is 2C$ = 1GBP.
Required - Determine the six months forward exchange between of the two currencies using the following approaches
a) Interest rate parity
b) Purchasing power parity.