The future value and present value equations also help in, Financial Management

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The future value and present value equations also help in

1. The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations.

2. Suppose today’s exchange rate is $USD 0.90/CAD. The annualized six-month interest rates on US dollars and Canadian dollars are 2% and 5% respectively. The six-month forward rate is $USD 0.89/CAD. A foreign exchange advisory service has predicted that the CAD will appreciate to $USD 0.93/CAD within six months.

Does uncovered interest rate parity hold? What is the arbitrage profit per $100,000 USD?

A) No; arbitrage profit= $4917

B) No; arbitrage profit= $6500

C) No; arbitrage profit= $1833

D) Yes; arbitrage profit= $6500

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