The six month interest rate for the canadian dollar

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Reference no: EM132005977

The yield to maturity (rate of interest) of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6% APR , compounded semiannually. What must be its price ?

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The six month interest rate for the Canadian $ is 9% when the six month interest rate for the US $ is 6.75%. at the same time the spot Canadian $ quotation in New York is $0.9100 and the six month forward rate is US $0.9025.

a. is interest rate parity holding? Why?

b. if not, how could advantage be taken of the situation?

c. if a large number of operators decide to do the arbitrage suggested under b what will the effect be on spot and forward quotations and on interest rates of the two currencies?

Reference no: EM132005977

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