Assume that on December 6, 2017, the spot rate for Canadian Dollars was 1.3353 CAD/1 USD. The 180-day (6 month) forward rate quoted in the market was for 1.3436 CAD/1 USD and the risk-free rate on 180-day securities was 0.66 percent APR for United States LIBOR and 1.91 percent APR for Canadian LIBOR. (LIBOR rates are widely used as a reference rate for financial instruments.) Assume that the US is the home country.
Are the quotes for CAD above relative to the USD direct or indirect quotations?
Circle one: direct or indirect
Is the USD expected to appreciate or depreciate relative to the CAD given the forward rate quoted above?
Circle one: appreciate or depreciate
What is the implied forward rate if interest rate parity holds in this case? Does interest rate parity hold here? Use 4 decimal places for accuracy.
Implied forward rate _________
Which country’s risk free security offers the highest expected $ profit for a US investor, or are the $ profits the same? Determine the $ profit for both investments using a beginning amount of 1,000,000 USD.
US LIBOR $ profit ________
Canadian LIBOR $ profit ________