2. Suppose that as the money manager of a US firm you face the following situation:

Here rB $ and rI $ are the one-year interest rates at which you can respectively borrow and invest in US dollars, and rB C$ and rI C$ are the one-year borrowing and investing interest rates in Canadian dollars.

a. If you had funds to invest for one year, in which currency would you invest?

b. If you wished to borrow for one year, in which currency would you borrow?

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9.0% 8.0% 10.5% C$ Pos 9.5% S(C$/ask$) 1.2400 S(C$/bid$) 1.2350 F,(C$/ask$) 1.2600 F(C$/bid$) 1.2550