You have the opportunity to invest in Canada at 6% or invest in an equally risky Australian investment that offers 20%.This is too good to be true! The current exchange rate is A$1.65/$.Which of the following do you suspect about this one-year investment?
A) Expected inflation is higher in Canada.
B) The one-year forward exchange rate is A$1.8679/$.
C) Real interest rates are higher in Canada.
D) The Australian Dollar is selling forward at an 8.48% premium relative to the Canada.
Correct Answer:
Verified
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