Problem: Using Spot and Forward Exchange Rates. Suppose the spot exchange rate for the Canadian dollar is Can$1.20 and the six-month forward rate is Can$1.23.
Q1. Which is worth more, a U.S. dollar or a Canadian dollar?
Q2. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$3.10? Why might the beer actually sell at a different price in the United States?
Q3. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?
Q4. Which currency is expected to appreciate in value?
Q5. Which country do you think has higher interest rates-the United States or Canada? Explain.