If the annual nominal interest rate on 5-year U.S.Government Treasury bonds is 7 percent, and the annual nominal interest rate on 5-year Canadian bonds is 5.5 percent, what is the expected future spot rate in 5 years given that the current spot exchange rate between U.S.dollars and Canadian dollars is $0.587?

Question

Quizplus · Accepted Answer

S₅/$0.587 = (1.07)⁵)/(1.055)⁵ = 1.4026/1.307
S₅ = $0.6299

If the Annual Nominal Interest Rate on 5-Year U