Using Spot and Forward Exchange Rates

Suppose the spot exchange rate for the Canadian dollar is Can$1.09 and the six-month forward rate is Can$1.06.

a. Which is worth more, a U.S. dollar or a Canadian dollar?

Canadian dollar

U.S. dollar

b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$3.04? (Enter your answer as directed, but do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Cost in U.S. dollars $    

c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

discount

premium

d. Which currency is expected to appreciate in value?

Canadian dollar

U.S. dollar

e. Which country do you think has higher interest rates—the United States or Canada?

Canada

the United States