please answer part a Consider the following facts about Canadian dollar: The current spot...
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please answer part a
Consider the following facts about Canadian dollar: The current spot exchange rate is CAD 1.29/USD. Over the next 90 days, there is a 60% probability that the CAD will strengthen relative to the US dollar by 6%, and there is a 40% probability that the CAD will weaken by 3%. Required: a. What is the expected future spot exchange rate of USD per CAD? (4 marks) b. Suppose that the 90-day forward rate is CAD1.32/USD. i) What contract would you make to speculate in the 90-day forward market by either buying or selling CAD 100,000? (3 marks) ii) Calculate your expected US dollar profit in the 90-day forward market using CAD 100,000 (forward speculation). (2 marks) c. Given that the rate of change in the exchange rate is conditionally normally distributed, if the standard deviation of the 90-day rate of appreciation of the CAD relative to the USD is 4%, what range covers 95.45% of your possible US dollar profits and losses? (6 marks)
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