The spot exchange rate for the Canadian dollar (C$)is U.S.$0.68/C$.The 6-month interest rate in the United States is 2.5%,and 3.0% in Canada.What is the 6-month forward rate for the Canadian dollar?

Question

Quizplus · Accepted Answer

To calculate the 6-month forward rate for the Canadian dollar, we use the formula:

Forward rate = Spot rate x (1 + Foreign interest rate) / (1 + Domestic interest rate)

Plugging in the given values, we get:

Forward rate = 0.68 x (1 + 0.03/2) / (1 + 0.025/2)
Forward rate = 0.68 x 1.015 / 1.0125
Forward rate = 0.6834

Therefore, the 6-month forward rate for the Canadian dollar is US$0.6767/C$. Option B is the closest answer.

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