1. The interest rate on riskless Canadian government debt (denominated in CAD) is currently 1.1%. The one year CAD/GPB forward rate is currently 1.65, and the CAD/GBP spot rate is currently 1.65. What is the purchasing power parity value for the British riskless rate? Please enter your answer as a decimal to at least 4 places - if your answer is 10.5%, please enter 0.1050.

2. This is a continuation of the previous question. If riskless British govenment debt currently pays 2.5%, would you expect borrowing pounds to get cheaper or more expensive over the next year if both British and Canadian investors were free to trade as they saw fit?