In 201?. the Bank of Canada fuelled strong rallies in Canadian dollar after it started raising interest rates from the super low level of 0.50% the}r had been stuck at previously, taking them up to 1% by year-end. The raised the rate by another 25 basis point at the beginning of the new yearliigher interest rates are a major driver of currency appreciation as they at tract speculators and greater inows of foreign capital, which is drawn by promise of higher returns. The recovery in the price of oil, which is Canada 'a premier export, further supported the currency although the correlation has broken down in the second-half of 2017, resulting in lesser upside for the Leonie from the most recent rise in oil prices}. Despite headwinds, however. the Canadian economy remains relatively robust and could be positively inuenced by faster US growth in the year ahead as America gets a tax-reform-hoost. Below is the projections by major banks about the value of the Canadian dollar vis-a-vis US dollar (3:) in each quarter of 2018. Emil: Home Forecast dale Spot [Doc '29. 2017) Q] Forecast Q2 Fin-am Q3 F'oremat Q4 Forecast CW M 15. 2017 1.25 1.27 1.26 1.55 1.24 J.I'. hiorgln Dec 15, 2017 1.25 1.30 1.25 1.22 1.21 Morgan Stanley 305' 25. 2017 1.25 1.23 1.27 1.33 1.31! 1501A Merrill Lynch Nov 19. 2017 1.25 1.30 1.33 1.33 1.30 Use the theories of Purchasing Power Parity (PPP). Relative Purchasing Power Parity (RPPP), Interest. Rate Parity (IRP), and International Fisher E'ect (IFE) to come up with your forecast of the USD vs CAD exchange rate (63) in each quarter of 2018. Which major bank's forecast is most likely to be inline with your own forecast based on the parity theories of exchange rates? (10 Marks)