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$1\mathrm{.}3$ The following short case study relates to questions $1\mathrm{.}3\mathrm{.}1$ and $1\mathrm{.}3\mathrm{.}2$:

Cherry Ltd is based in country C$,$ where the functional currency is the C$$.$ Cherry Ltd sells some products in various European countries, denominated in Euro $($EUR$).$ Sales $1$ year's time are expected to be EUR $400000.$

The current spot rate is C$$/$EUR $12\mathrm{.}50($that is C $1=$ EUR $12\mathrm{.}50).$ Interest rates in Europe and country $C$ are expected to be $6\%$ and $10\%$ respectively over the next year.

The financial director of Cherry Ltd is attempting to estimate the likely exchange rate in $1$ years' time, to assess the likely value of the entity's foreign currency income.

$1\mathrm{.}3\mathrm{.}1$ What is the expected exchange rate in $1$ year's time, using the interest rate parity theory?

A C $\frac{\text{\$}}{E}UR7\mathrm{.}50$

B C$$/$EUR $12\mathrm{.}05$

C C$$/$EUR $12\mathrm{.}46$

D C$$/$EUR $12\mathrm{.}97$

$1\mathrm{.}3\mathrm{.}2$ What is the expected value of EUR sales, when translated into C$$?$

A C$ $32000$

B C$ $33195$

C C$ $3083636$

D C$ $3210191$