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14 April, 00:15

The interest rate on a 1-year canadian security is 8%. the current exchange rate is c$ = us $0.78. the 1-year forward rate is c$ = us $0.76. the return (denominated in u. s. $) that a u. s. investor can earn by investing in the canadian security is

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  1. 14 April, 00:35
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    Answer: 5.23%

    Explanation:

    Given, interest rate, r = 0.08; current exchange rate, c = 0.78 and forward

    rate, f = 0.76

    Let X represent the return earned by the U. S. investing in Canadian security

    x = 1 + ((1+r) * f/c)

    x = 1 + (1.08*[0.76/0.78])

    = 5.23%.
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