One year ago the spot rate of U.S. dollars for Canadian dollars was USD1/CAD1. Since that time the rate of inflation in the U.S. has been 4% greater than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately ________.

a) USD 0.96/CAD 1

b) USD 1.04/CAD 1

c) USD1/CAD1

d) Relative PPP provides no guide for this type of question.