Interest rate parity

Several factors affect the exchange rate of a currency with another currency. Which of the following statements are true about the factor that have an impact on exchange rates? Check all that apply. If a government intends to let its currency's value fall relative to other currencies, it will sell its currency from reserves in the market. When interest rates decrease in a country, its currency's value tends to decrease because domestic investors convert their home currency into other currencies to invest in these higher yielding securities. If a country experiences greater inflation than its trading partners, the value of its currency decreases over time relative to the value of its partners' currencies. If the demand for a currency increases, the currency's value will decrease relative to other currencies. The relationship between interest rates and exchange rates can be represented through the concept of interest rate parity. Consider the following: Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$): The current one-year interest rate on U.S. Treasury securities is 8.03%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 6.56% 5.13% 5.70% 4.85% Interest rate parity recognizes that when you invest in a country other than your home country, two factors affect your investment-returns on the investment itself and changes in the exchange rate. Which of the following would cause the overall return on your investment to be lower than the investment's stated return? Your home currency deprecates relative to the currency in which the investment is denominated. The currency in which the investment is denominated appreciates relative to your home currency. Your home currency appreciates relative to the currency in which the investment is denominated