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In Canada the inflation rate is 3.5%, and the interest rate is 5%, while in the US the inflation rate is 1% and the interest

In Canada the inflation rate is 3.5%, and the interest rate is 5%, while in the US the inflation rate is 1% and the interest rate is 2%. The spot exchange rate of Canadian dollar is US$0.8137/CA$. Assume the interest parity holds.

A. Calculate the forward premium (or discount) in percentage for Canadian dollars based on interest rate parity. Please provide the formula used and state your answer in a percentage.

B. Indicate whether the Canadian dollar forward rate carries a premium or a discount.

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