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Assume that there are substantial capital flows among Canada, the United States, and Japan. If interest rates in Canada increase to a level above the
Assume that there are substantial capital flows among Canada, the United States, and Japan. If interest rates in Canada increase to a level above the U.S. interest rate, and inflationary expectations remain unchanged, how could this affect the value of the Canadian dollar against the U.S. dollar? If interest rates in Canada increase, there may be in capital flows from Canada to the U.S. In addition, U.S. investors their investments in Canadian's securities. This places pressure on the Canadian dollar's value. How might this increase in Canada's interest rates possibly affect the value of the Canadian dollar against the lapanese yen? Japanese investors that previously invested in the U.S. may shift to Canada. Thus, the increased flow of funds from Japan would place pressure on the Canadian dollar against the Japanese yen. Assume the spot rate of the British pound is $1.71. The expected spot rate 1 year from now is assumed to be $1.66. What percentage depreciation does this reflect? Do not round intermediate calculations. Round your answer to two decimal places. Enter your answer as a positive value. Expected depreciation
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