Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.14. A. Which is worth more, a U. S. dollar or a Canadian dollar?
B. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.85?
C. Is the U. S. dollar selling at a premium or a discount relative to the Canadian dollar?D. Which currency is expected to appreciate in value?E. Which country do you think has higher interest rates - the United States or Canada?

Explanation:

Given that:

a)

1$ = Can $1.12

It takes a value of 1 U.S dollar to have 1.12 Canadian dollars.  This signifies that the U.S dollar is worth more than Canadian dollars.

b)

Assuming that the absolute Purchasing Power Parity PPP holds,

Since 1$ = Can $1.12, the cost  in the United States of an Elkhead beer, if the price in Canada is Can$2.85 can be determined to be:

=

= $2.545

c)

Yes, the U.S. dollar is selling at a premium relative to the Canadian dollar.

This is because we are being told that the spot exchange rate for the Canadian dollar is Can $1.12 & in six (6) months time the forward rate will be Can $1.14.

d)

The U.S dollar is expected to appreciate in value because it is trading at a premium in the forward market.

e)

Canada has higher interest rates. This determined by using the formula:

=

where; n= numbers of years = 6 month/12 month = 0.5 year

Then;

= 0.0356

= 3.56%

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi