Suppose in the Spot Market 1 U

Multiple Choice

Suppose in the spot market 1 U.S.dollar equals 1.60 Canadian dollars.6-month Canadian securities have an annualized return of 6% 6-month U.S.securities have an annualized return of 6.5% and a periodic return of 3.25%.If interest rate parity holds, what is the U.S.dollar-Canadian dollar exchange rate in the 180-day forward market?

A) 1 U.S.dollar = 0.6235 Canadian dollars
B) 1 U.S.dollar = 0.6265 Canadian dollars
C) 1 U.S.dollar = 1.0000 Canadian dollars
D) 1 U.S.dollar = 1.5961 Canadian dollars
E) 1 U.S.dollar = 1.6039 Canadian dollars