1. Assume that interest rate parity holds. The U.S. four-year interest rate is 5% annualized, and the Indian four-year interest rate is 8% annualized. Today's spot rate of the Indian rupee is $.14. What is the approximate four-year forecast of the rupee's spot rate if the four-year forward rate is used as a forecast?
$.262.
$.174.
$.125.
$.226.
$.115.
2. If inflation rate in Canada is 5%, while the inflation rate in the U.S. is 3%. According to PPP, the Canadian dollar should ____ by ____%.
Appreciate; 1.94
Depreciate; 1.90%
Depreciate; 4.85
Appreciate 4.85%