Exchange rate between the canadian dollar and u.s. dollar

Reference no: EM13201176

You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power parity holds.

a) Using the Fisher equation, what can you infer about expected inflation in Canada and in the United States?

b) What can you infer about expected change in the exchange rate between the Canadian dollar and the U.S. dollar?

c) A friend proposes a get-rich-quick scheme: borrow from a US bank at 8%, deposit the money in a Canadian bank at 12%, and make a 4% profit. What is wrong with this scheme?

Reference no: EM13201176

Questions Cloud

Explain how many cubic inches of material do need : How many cubic inches of material do you need to make a solid rubber ball with a diameter of 3 in.? Round your answer to two decimal places.

Should warren implement his idea or not : Suppose that Jeffs friend Warren has an idea for product improvement at his firm but he is concerned that the idea may already be patented. If indeed the improvement is already patented, the firm holding the patent may sue Warren for infringing th..

What are the implications of market efficiency : What is Market Efficiency and what are the implications of Market Efficiency, in a global capital market, for a manager for the pricing of securities and investing corporations' money?

Explain oppose the reinstatement of a military draft : Is there convincing evidence that the proportion of American adults who oppose reinstatement of the draft is greater than 0.7? Use a significance level of 0.05. (For z give the answer to two decimal places. For P give the answer to four decimal pl..

Exchange rate between the canadian dollar and u.s. dollar : Suppose that the real interest rates are equalized in the two countries and that purchasing-power parity holds. Using the Fisher equation, what can infer about expected inflation in Canada and in the United States

Explain why is it necessary to study the order of operations : Why is it necessary to study the order of operations and the laws of operations before you begin solving equations?

What are the ultimate causes for the current crisis : What are the potential implications of this problem for Euro-Currency and European Monetary Integration. What should Europe do to address this problem now and what are the potential perils?

Whether limiting waste disposal in manner provides solution : suppose that the disposal firm's state passes a law that limits waste disposal to 50,000 cubic feet per year, as a response to the monopolist's deadweight loss. Please calculate the change in the monopolist's deadweight loss.

Challenges due to the increasing use of e-finance : What are the positive aspects of increasing adoption of E-Finance globally and what are the major challenges due to the increasing use of E-Finance?

User Account

All Pages