What can infer about expected change in the exchange rate

Reference no: EM13329310

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: EM13329310

Questions Cloud

Develop a prototype web site to present car details : Chorley Autos is an used car dealer keen to establish its own online presence. It wants to compete with larger national chains by offering a distinctive service that can compete with the established sites.

Critically examine the changing focus of staffing policy : Critically examine the changing focus of staffing policy, using practical illustrations, to demonstrate how and why the focus on staffing practice has changed. Examples can be drawn from your own experience, workplace and academic literature.

Why moral hazard is important concept to insurance company : Difference between Moral Hazard and Morale Hazard, Why Moral Hazard is important concept to insurance company

How will the equilibrium price and equilibrium quantity of : If the price of processor chips used in manufacturing personal computers decrease, what will happen in the market for personal computers? How will the equilibrium price and equilibrium quantity of personal computers change?

What can infer about expected change in the exchange rate : 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.

Company received the data below for its rodent cage : ABC Company received the data below for its rodent cage production unit. Find the total productivity.

Compute the resistance of the wire : The magnetic flux that passes through one turn of a 18-turn coil of wire changes to 1.0 Wb from 9.0 Wb in a time of 0.092 s. What is the resistance of the wire

What is the marginal cost of the 101st unit of output : In a short run, a firm’s total costs of producing the hundredth unit of output equals $10,000. If it produces one more unit, its total cost will increase to $10,150.

How far does the block go : A 0.11- kg block on a wooden table is given a sharp blow with a hammer. The block then slides across the table to a stop. How far does the block go

User Account

All Pages