Suppose that the risk-free rates in the United States and in the Canada are 5% and 3%, respectively.The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$.What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.
A)$1.00/C$
B)$0.82/ C$
C)$0.88/ C$
D)$0.78/ C$
E)$1.22/ C$

Question

Quizplus · Accepted Answer

$0.80(1.05/1.03) = $0.82/ C$.

Suppose That the Risk-Free Rates in the United States and in the Canada