Spot rate for canadian dollars

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Reference no: EM131078223

If the spot rate for Canadian dollars is 1.25 dollars equals 1 US $, and the annual interest rate on fixed rate one-year deposits of Canadian dollars is 2.5% and for US$ is 1.5%, what is the nine-month forward rate for one US dollar in terms of Canadian dollars? Assuming the same interest rates, what is the 18-month forward rate for one Canadian dollar in US dollars? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, in this case will the Canadian Dollar get stronger or weaker compared to the US dollar? What does this indicate about the market’s inflation expectations in Canada compared to the US? On January 2d, 2017, Toyota expects to ship 25,000 Lexus SUVs from its plant in Canada to the US, which it will sell through US dealers on 270-day terms at $38,000 each. So Toyota will receive a US$ payment from its dealers on September 28th, 2017. Assuming that Toyota needs to cover its expenses in Canada and thus wants to hedge its Canadian dollar exposure using a forward contract with a Canadian bank in the US, what is the minimum amount of Canadian dollars it should receive on September 28th, 2017 given the nine month forward rate for one US dollar in terms of Canadian dollars that you calculated above? What are two other ways Toyota might hedge their Canadian Dollar/US$ exposure?

Reference no: EM131078223

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