Assuming purchasing power parity holds

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Reference no: EM131082936

Suppose the spot exchange rate for the Canadian dollar is Can$1.15 and the six-month forward rate is Can$1.19

1-Assuming purchasing power parity (PPP) holds, what is the cost in the U.S. of a Moosehead beer if the price in Canada is Can$2.50?

2-: Identify two reasons why PPP or the "law of one price" may be violated or may not hold.

3-Is the Canadian dollar selling at a premium or a discount relative to the U.S. dollar in the forward market? Explain.

4-Explain which currency (U.S. dollar or Canadian dollar) is expected to appreciate in value.

Reference no: EM131082936

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