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Estimate the expected profit or loss

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Question - Assume that you believe purchasing power parity (PPP) exists. You expect that inflation in Canada during the next year will be 4 percent and inflation in the United States will be 7 percent. Today the spot rate of the Canadian dollar is $0.91 and the one-year futures contract of the Canadian dollar is priced at $0.88. Estimate the expected profit or loss if an investor sold a one-year futures contract today on 1 million Canadian dollars and settled this contract on the settlement date. Use a minus sign to enter a loss, if any. Do not round intermediate calculations. Round your answer to the nearest dollar.

Reference no: EM132744832

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