The spot exchange rate for Canadian Dollar(C$) is U.S.$0.68/C$.The six-month interest rate in U.S.is 2.5% and 3.0% in Canada.What is the six-month forward rate for Canadian Dollar?

Question

Quizplus · Accepted Answer

Using the interest rate parity formula:

(1+US six-month interest rate)/(1+Canada six-month interest rate) = (Forward rate/Spot rate)

Plugging in the given values:

(1+0.025)/(1+0.03) = (Forward rate/0.68)

Solving for the forward rate:

Forward rate = 0.68 x (1+0.025)/(1+0.03) = 0.6767

Therefore, the six-month forward rate for Canadian Dollar is U.S.$0.6767/C$.

The Spot Exchange Rate for Canadian Dollar(C$) Is U