In October 2013, there is a consensus in the capital market that the annual inflation rate is likely to be 3.5% in US and -1.5% in China for the next two years. The spot exchange rate in October 2013 is CNY6.00/$. Based on this information, answer the following questions regarding your prediction on foreign exchange rate.

1. According to the above information, _____(USD or Chinese Yuan?) is expected to depreciate in value in year 2014 if parity relations hold. (2 points)

2. Chinese Yuan will be selling at a forward _______(premium/discount). The size of the forward premium/discount is _____%. (2 points)

3. You would expect _____ (US or China?) to have higher interest rate according to parity relations. (2 points)

4. Using the exact version of parity relationships the expected spot rate in October 2014 (one year from 2013) is CNY _____/$. (Please use indirect quote and leave 2 decimal points) (2 points)

5. 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)