A)

The exchange rate is a price of a foreign currency (domestic currency quoted against a foreign one).

Given an expected exchange rate and foreign interest rate, an expected return from a foreign deposit has

1) a negative correlation with a current exchange rate

2) a positive correlation with a current exchange rate

3) no correlation with a current exchange rate

B)

The foreign interest rate is 1%. Expected and current exchange rates (domestic currency quoted against foreign one) are 102 and 100, respectively.

Calculate the expected return from this foreign deposit