5. Now consider an investment in a Canadian dollar money market deposit, using the information...
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5. Now consider an investment in a Canadian dollar money market deposit, using the information in question 4 for interest rates and the expected exchange rate percentage change.
a) What is the expected return on this investment from a U.S. investors perspective, if he doesnt hedge the exchange rate risk?
b) What is the expected return If he does hedge the exchange rate risk?
c) What is the risk on the unhedged and hedged positions?
d) How does the risk/expected return combination on the covered Canadian money market investment compare with investing in a U.S. money market investment, from a U.S. investors perspective?
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