2. The Canadian dollar-denominated one-year interest rate is 3%. The Euro-denominated one-year interest rate is 4%. Both rates are expressed with continuous compounding. The spot exchange rate is 1.5000 C$/. Use four decimals in your answers to all parts of this problem (a) What is the one-year forward exchange rate (in C$/ )? (b) Find a synthetic one-year long forward on 1. Specifically, explain how you can replicate the cash flows of a forward contract to buy 1 in one year at the exchange rate found in part (a) by buying or selling Euros () at the spot exchange rate and by borrowing or investing in Canadian dollars and Euros. Explain your transactions and show the cash flows from each transaction. Note: to solve this problem is it useful to look at the example on slide 70 of the Forward Contracts class PowerPoint presentation. (c) Find a synthetic one-year short forward on 1. Specifically, explain how you can replicate the cash flows of a forward contract to sell 1 in one year at the exchange rate found in part (a).