Answered

Welcome to Westonci.ca, the place where your questions are answered by a community of knowledgeable contributors. Join our platform to connect with experts ready to provide precise answers to your questions in various areas. Explore comprehensive solutions to your questions from a wide range of professionals on our user-friendly platform.

Assume that the nominal interest rate in Canada is 5% and the nominal interest rate in the US is also 5%. The current exchange rate is 1.25CAD/USD and the 1-year forward exchange rate is 1.30CAD/USD. Considering the above figures, you intend to make arbitrage profit by doing the following: (i) borrowing 1,000 CAD, (ii) converting CAD to USD, (iii) investing USD for 1 year, (iv) exchanging USD back for CAD in 1 year, and (v) returning the CAD loan principal and interest. What will be the outcome of you trade after going through the steps as described above?

Sagot :

Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Thank you for your visit. We're committed to providing you with the best information available. Return anytime for more. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.