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7. PPP and Real Interest Rates. The nominal (quoted) U.S. one-year interest rate is 6%, whereas the nominal one-year interest rate in Canada is 5%.

7. PPP and Real Interest Rates. The nominal (quoted) U.S. one-year interest rate is 6%, whereas the nominal one-year interest rate in Canada is 5%. Assume you believe in purchasing power parity. You believe the real one-year interest rate is 2% in the U.S, and that the real one-year interest rate is 3% in Canada. Today the Canadian dollar spot rate at $.90. What do you think the spot rate of the Canadian dollar will be in one year?

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