Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33.The U.S.dollar is selling at a _____ relative to the Canadian dollar and the U.S.dollar is expected to _____ relative to the Canadian dollar.

Question

Quizplus · Accepted Answer

The U.S. dollar is selling at a premium because it is more expensive in the forward market than in the spot market. The U.S. dollar is expected to appreciate in value relative to the Canadian dollar because the U.S. dollar is worth more Canadian dollars in the future than it is today.

Suppose the Spot Exchange Rate for the Canadian Dollar Is