An investor is deciding between an investment in US securities and a covered interest arbitrage investment. The CAD to USD spot exchange rate is 1.2500 CAD = 1 USD. The 12-month forward rate is 1.2995 CAD = 1 USD. The annual interest rate in the US is 1.005% and the interest rate on Canadian securities is 5% Which of the following is correct?

A. Investors will prefer Canadian securities because the forward discount on the dollar more than compensates for lower interest rates in the US.

B. None of the other answers are correct.

C. Considering transactions costs, the investor should be indifferent between an investment in US securities or a covered interest arbitrage investment in Canadian securities.

D. Investors will prefer US securities because the forward premium on the dollar more than compensates for the lower nominal interest rate in the US.

E. Investors will invest in Canadian securities because they are higher yielding compared to US securities.