Assume the spot rate on the Japanese yen is ¥110.05 while it is C$1.1379 on the Canadian dollar. The respective three-month forward rates are ¥111.75 and C$1.1339. The value of the U.S. dollar will ________ with respect to the yen and will ________ with respect to the Canadian dollar.

Question

Quizplus · Accepted Answer

The U.S. dollar will appreciate with respect to the yen because the three-month forward rate is higher than the spot rate, indicating that the yen is expected to weaken against the U.S. dollar. However, the U.S. dollar will depreciate with respect to the Canadian dollar because the three-month forward rate is lower than the spot rate, indicating that the Canadian dollar is expected to strengthen against the U.S. dollar.

Assume the Spot Rate on the Japanese Yen Is ¥110