In October $2013,$ there is a consensus in the capital market that the annual inflation rate is likely to be $3\mathrm{.}5\%$ in US and $-1\mathrm{.}5\%$ in China for the next two years. Based on this information, answer the following questions regarding According to the above information,

USD

$($USD or Chinese Yuan?$)$ is expected to depreciate in value in year $2014$ if parity relations hold. $(2$ points$)$your prediction on the foreign exchange rate. Chinese Yuan will be selling at a forward

$($premium$/$discount$).$ The size of the forward premium$/$discount is

$\%.$ Use approximate version of parity relationships. $(2$ points$)$ You would expect $[$l$1]($US or China?$)$ to have a higher interest rate according to parity relations. $(2$ points$)$

Group of answer choices

US

China In October $2013,$ there is a consensus in the capital market that the annual inflation rate is likely to be $3\mathrm{.}5\%$ in US and $-1\mathrm{.}5\%$ in China for the next two years. The spot exchange rate in October $2013$ is CNY$6\mathrm{.}10/$$$.$ Based on this information, answer the following questions regarding your prediction on foreign exchange rate.

Using the exact version of parity relationships the expected spot rate in October $2014($one year from $2013)$ is CNY

$/$$$.($Please use indirec The spot exchange rate in October $2013$ is CNY$6\mathrm{.}10/$$$.$ Based on this information, answer the following questions regarding your prediction on the foreign exchange rate.

Using the exact version of parity relationships, the forward rate in October $2015($two years from $2013)$ is CNY

$/$$$.($Please use indirect quote and leave $2$ decimal points$)(2$ points$)$quote and leave $2$ decimal points$)(2$ points $)$The spot exchange rate in October $2013$ is CNY$6\mathrm{.}10/$$$.$ Based on this information, answer the following questions regarding your prediction on the foreign exchange rate.

Using the exact version of parity relationships, the forward rate in October $2015($two years from $2013)$ is CNY

$/$$$.($Please use indirect quote and leave $2$ decimal points$)(2$ points$)$