Question

Severus Co. has to pay 5 million Canadian dollars for supplies it recently received from Canada. Today, the Canadian dollar has appreciated by 2 percent against the U.S. dollar. Severus has determined that whenever the Canadian dollar appreciates against the U.S. dollar by more than 1 percent, it experiences a reversal of 40 percent of that change on the following day. Based on this information, the Canadian dollar is expected to ____ tomorrow, and Severus would prefer to make payment ____.​

Answer 1

Answer:

Based on this information, the Canadian dollar is expected to DEPRECIATE BY 0.8% tomorrow, and Severus would prefer to make payment TOMORROW.​

Explanation:

Since the Canadian dollar tends to depreciate by 40% after it appreciates more than 1% against the US dollar, we can calculate the expected depreciation:

expected depreciation = 2% x 40% = 0.8%

Since Severus expects that the Canadian dollar will depreciate tomorrow by 0.8%, it will wait until then to pay its debt.