A)The spot rate between Canada and the U.S. is Can$1.2381 = $1, while the one-year forward rate is Can$1.2379 = $1. The risk-free rate in Canada is 2.8 percent. The risk-free rate in the U.S. is 3.6 percent. How much profit can you earn on a loan of $1,000 by utilizing covered interest arbitrage?

-$8.14

-$7.83

-$5.36

$3.49

$6.57

B)The one-year forward rate for the British pound is 0.6781 = $1. The spot rate is 0.6789 = $1. The interest rate on a risk-free asset in the UK is 4.6 percent. If interest rate parity exists, what is the one-year risk-free rate in the U.S.?

4.68 percent

4.72 percent

4.77 percent

4.83 percent

4.87 percent

C)The treasurer of a major U.S. firm has $12 million to invest for three months. The interest rate in the U.S. is 0.42 percent per month. The interest rate in the UK is 0.52 percent per month. The spot exchange rate is 0.70, and the three-month forward rate is 0.71. Ignoring transaction costs, in which country would the treasurer want to invest the company's funds? Why?

	U.S.; earn an additional $47,211.16
	U.S.; earn an additional $135,325.24
	UK; earn an additional $9,418.02
	UK; earn an additional $38,522.47
	UK; earn an additional $121,510.67