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Question
A Detroit bank pays 6% for a $100,000 six-month certificate of deposit, while a Windsor, Ontario bank advertises a rate of 7.5%. If it costs approximately $50 in travel and forward contract commissions to invest in Canada, which CD should the Detroit investor take? Refer to the foreign exchange rates below.U.S. Equiv. Rates
Canada (dollar) $0.8345
180 day Forward $0.8225
a. Make the U.S. CD investment.
b. Make the Canadian CD investment.
c. The investor is indifferent between the two because of interest parity.
d. One is unable to make this calculation with the data provided
Answer
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