2. Interest Rate Parity Assume that the interest rate on 1 year t-bill in Canada is 60% and the interest rate for similar paper in the US yields 1%, what do you think the 1 year forward change in the Canadian dollar has to be in order for Interest Rate Parity to hold?

2. Interest Rate Parity Assume that the interest rate on 1 year t-bill in Canada is 60% and the interest rate for similar paper in the US yields 1%, what do you think the 1 year forward change in the Canadian dollar has to be in order for Interest Rate Parity to hold?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 1DQ

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Question

Interest Rate Parity
Assume that the interest rate on 1 year t-bill in Canada is .60% and the interest rate for similar paper in
the US yields 1%, what do you think the 1 year forward change in the Canadian dollar has to be in erder
for Interest Rate Parity to hold?

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