1. The interest rate on one-year Canadian government securities is 6 percent and expected inflation rate for the coming year is 2 percent. The U.S. one-year government security instrument interest rate is 4 percent with expected inflation for this coming year of 1 percent. Assume the exchange rate for the US$/CAD$ as of mid-June of this year is US$1 = CAD$1.02296 (US$100 = CAD$102.27). What is the spot exchange rate a year from now? What is the forward exchange rate a year from now?

Explain the logic of your answers.