Q$\mathrm{.}1$ The annualized interest rate on deposits in Canada is $10\%.$ In yen deposits in Japan, it is $7\mathrm{.}5\%.$ Thespot rate of the Yen is $130$ Yen$/$$$.$a$.$ Which currency is expected to depreciate in six months and by how much?b$.$ If the covered interest parity condition holds, what is the six$-$month forward Yen$/$$exchange rate?c$.$ A Canadian importer plans to pay $1$ million yen six months from now. She buys aforward contract and places $x in a Canadian bank deposit so that the proceeds will beused to pay for the forward yen later. Calculate x$3.$ Use the asset approach to exchange rate determination discussed in class to answer thefollowing questions. The interest rate on US dollar denominated assets maturing in one year is$10\%$ and the interest rate on comparable Canadian dollar denominated assets is $8\%.($a$)$ Consider two possible expectations for the direct spot exchange rate between the Canadiandollar and the U$.$S$.$ dollar $($Canadian dollars per one U$.$S$.$ dollar $($Ec$$|$US$$))$ in one year: $(1)$ the spotrate will fall by $5$ Canadian cents or $(2)$ the spot rate will rise by $3$ Canadian cents $($note thatthese changes are in absolute levels, not in percentage terms$).$ Explain which expectation for thefuture spot rate makes sense. Determine the current equilibrium spot rate under each scenarioto justify your answer.$($b$)$ Suppose interest rates are as given initially $(10\%$ and $8\%)$ and the current spot rate equals $2$Canadian dollars per U$.$S$.$ dollar. Calculate the forward discount or forward premium.