a) According to Interest Rate Parity, if the Interest rate is 6% in USA and 3% in Australia, against the $USD, we would expect the $AUD to: (Circle the most appropriate answer.) (2 Marks) APPRECIATE DEPRECIATE NO CHANGE b) If the spot rate for CAD/AUD is 0.9500 and the annual interest rate is 8% in Canada and 6% in Australia, what is the fair price to pay for a 3 month (90 day) CAD/AUD Forward contract purchased today? (2 Marks) Answer as a decimal to 4 decimal places. Answer: CAD/AUD c) If the spot rate for CAD/AUD is .90 and the annual interest rate is 2% in Canada and 3% in Australia is there an arbitrage opportunity if the 12 month CAD/AUD Forward contract price quoted today is .88? (Circle the most appropriate answer.) (2 Marks) YES NO INDETERMINEABLE d) According to Purchasing Power Parity, if inflation decreases in one country relative to another, we expect the exchange rate of that country to: (Circle the most appropriate answer.) (2 Marks) APPRECIATE DEPRECIATE NO CHANGE