4. Interest rate parity The rise of qlobalization is due to the mamy companies that have become multinational corporabions for various teasons-for example, ro access better trechnology, to enter new markets, to obtain more raw materials, to find funding resources, to minimize production costs, or to diversity business mak. This mulbmarkeet presence exposes companies to different kinds of risk as well-for example, political risk and exchange rate rikk. The relationship between interest rates and exchange rates can be represented through the concept of interest rate parity. Consader the following: Suppose you observe the following spot and forward exchange rates between the US. dollar (5) and the Canadian dollar (CS) The current one-yoar interest rate on U.5. Treasury securibes n 6.39%. If interest rate panty holdw, what is the expected yield on ene-year Canadan sepurities of foual nok? 4.54% 4 oys. 4314 The current one-year interest rate on U.S. Treasury secunties is 6.89%6. If interest rate parity holds, what is the expected yield on one-year Canadian secaribes of equal risk? 4.54% 4. 99% 4.09% Interest rate parity recognizes that when you invest in a country other than your home country, two factors affect your investment-returns on the irvestment itself and changes in the exchange rate. Which of the folowing would chuse the overall return on your investment to be lower than the investment's stated return? Your home currency appeeciates rebative to the currency in which the investinent is denoeninated Your home currency deprecistes relatwe to the curtenicy in which the investrnent is denominated. The currency in which the irvestment is senominated apgreciates relative to your home cumency