a) Assume the following information for Australia and the United States of America where AUD represents Australian dollar and USD represents US dollar. AUSTRALIA UNITED STATES Nominal Interest rate 1.50% 0.78% Expected Inflation 1.30% 1.60% Spot rate 1AUD = 0.7536 USD One-year forward rate 1AUD = 0.7482 USD a) Does IRP hold? Justify your answer with any appropriate calculations and explain in no more than 1-2 sentences (60 words maximum). (2 marks) b) According to the International Fischer Effect (IFE), what is the expected spot rate of the AUD in one- year? (2 marks) c) Suppose that the price level in Canada is CAD 16,600, the price level in France is EUR 11,750, and the spot exchange rate is 1 EURO = 1.35 CAD i.e. EUR/CAD 1.35. i. What is the implied exchange rate of EUR/CAD that satisfies absolute PPP? (2 marks) ii. Is the euro overvalued or undervalued relative to the Canadian dollar? Explain in no more than 1-2 sentences (60 words maximum). (2 marks)