CH 18 TEST Currently, $1 will buy C$1.46 while $1.29 will buy €1. What is the ex
ID: 2754468 • Letter: C
Question
CH 18 TEST
Currently, $1 will buy C$1.46 while $1.29 will buy €1. What is the exchange rate between the Canadian dollar and the euro? C$1 = €0.685 C$1.46 = €0.5310 C$1 = €0.5310 C$1.46 = €1.29 C$1 = €1.29
The camera you want to buy costs $435 in the U.S. If absolute purchasing power parity exists, the identical camera will cost _____ in Canada if the exchange rate is C$1 = $0.7529.
C$327.51 C$577.77 C$576.44 C$433.67 C$579.10
The current spot rate is C$1.376 and the one-year forward rate is C$1.318. The nominal risk-free rate in Canada is 4 percent while it is 8 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.
$0.0780 $0.0058 $0.0838 $0.0000 $0.0458
The spot rate for the Japanese yen currently is ¥124 per $1. The one-year forward rate is ¥123 per $1. A risk-free asset in Japan is currently earning 8 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free U.S. security?
8.96 percent 7.21 percent 8.80 percent 7.13 percent 8.88 percent
Explanation / Answer
1)
1$ = C$1.46
1Euro = $1.29
1 Euro = C$(1.29*1.46) = C$1.8834.
1 C$ = 1/1.8834 = 0.53095 Euros
1 C$ = 0.5310 Euros
Therefore, Option C is correct.
2)
Camera in Us = $435.
Exchange rate 1C$ = $0.7529.
Camera Cost in Canada = $435/0.7529 = $577.77.
Therefore, the correct answer is option B.
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