On January 26, 2000, the nominal interest rate paid on a three-month federal government Treasury bill was 5.340% in the United States and 5.034% in Canada. At those interest rates, international bond traders were indifferent between holding Canadian as opposed to U.S. Treasury bills.

a. Did the financial market expect the Canada-U.S. exchange rate to appreciate or depreciate?

b. On that date, one Canadian dollar could be purchased for 0.69046 U.S. dollars. What did the market expect the exchange rate to be in three months?

c. Three months later, on April 26, 2000, when the Treasury bills matured, one Canadian dollar could be purchased for 0.67613 U.S. dollars. Had a Canadian saver purchased the U.S. government Treasury bill back on January 26, what rate of return would he or she have earned?