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1. Suppose today’s exchange rate is $USD 0.90/CAD. The annualized six-month interest rates on US dollars and Canadian dollars are 2% and 5% respectively. The six-month forward rate is $USD 0.89/CAD. A foreign exchange advisory service has predicted that the CAD will appreciate to $USD 0.93/CAD within six months. What action do you need to take to speculate in the forward market? What is the expected profit from speculation for CAD100,000?
A. long forward on USD; expected profit =$4,000
B. short forward on CAD; expected profit =$361
C. short forward on USD; expected profit =$1,000
D. long forward on CAD; expected profit=$4,000
2. The bond market requires a return of 12.5 percent on the seven year bonds issued by sb mining. the 12.5 percent on the seven year bonds Issued by SB mining. The 12.5 percent is referred to as coupon rate?
True or False?
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