Suppose the spot foreign exchange rate of the Canadian dollar is $US 1.53, while its 12-month forward rate is $US 1.58. One-year interest rates are 6% in Canada and 10% in the United States. Are there quick profits to be made from foreign currency arbitrage here? If so, show the sequence of purchases and sales, using $Can. 100,000 as your starting point.
Suppose the spot foreign exchange rate of the Canadian dollar is $US 1.53, while its 12-month forward rate is $US 1. One-year interest rates are 6%…
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