20:00 Time Left:1:29:46 Question 7 (14 points) You operate a Canadian company and you collect the following information of three countries. Current spot exchange rates are C$1.20/US$ and C$1.40/. Country One-year interest rate Expected inflation rate 5.8% US 7.0% Canada 4.5% 1.0% UK 5.7% 4.0% Your company needs to borrow C$100,000 for one year to finance a new project. You are comparing the costs of borrowing in C$, US$, and . If you decide to borrow in one of the two foreign currencies (i.e., US$ or ), you will repay the principal plus interest by converting C$ to that foreign currency at the prevailing spot exchange rate at year end. If PPP holds, in which currency should you borrow to obtain the lowest expected financing cost? What is the resultant effective interest (in C$) you will be paying? Give your answer to the nearest C$. Show your calculations. Paragraph