Question

The interest rate on a 1-year canadian security is 8%. the current exchange rate is c$ = us $0.78. the 1-year forward rate is c$ = us $0.76. the return (denominated in u.s. $) that a u.s. investor can earn by investing in the canadian security is

Answer 1

Answer: 5.23% 
Explanation:
 Given , interest rate, r =0.08; current exchange rate, c =0.78 and forward
rate, f= 0.76
 Let X represent the return earned by the U.S. investing in Canadian security
 x = 1+((1+r)*f/c)
 x =1+(1.08*[0.76/0.78])
  = 5.23%.