Question

Suppose the spot exchange rate for the Canadian dollar is Can$1.14 and the six-month forward rate is Can$1.16. a. Which is worth more, a U.S. dollar or a Canadian dollar?

Answer 1

The U.S $ is worth more than the Can $.

Step-by-step explanation:

We are given that,

The spot exchange rate for the Canadian dollar = Can $1.14

The six-month forward rate is Can $1.16.

Since the U.S $1 = Can $1.14, it implies that U.S $1 will buy Can $1.14

The six months forward rate implies the U.S.$1 we now buy Can $1.16

This means that the U.S dollar is appreciating against the Can $.

The U.S $ is, therefore, worth more than the Can $.