Assume that the current spot rate is $1 per Canadian dollar, and that nominal interest rates on one-year loans in the U.S. and Canada are 3% and 8% respectively. What rate of return will you have earned in USD, if you borrowed $100,000 in the U.S. and loaned the money in Canada, and if one-year hence the spot rate is $0.9537 per Canadian dollar?

5%

3%

2.5%

1.2%

zero%