Question 4 [15 points]: Foreign Exchange Markets Assume you have $1000 Canadian dollars (CAD) to invest in either of the following two investments (both have the same risk and liquidity): A one year Canadian bond which pays i=6% A one year US bond which pays i=20%. The current nominal exchange rate is E=0.70 USD/CAD. In a year, you expect the Canadian dollar to appreciate to Ef=0.75 USD/CAD. a) Based on your forecast, which is the better investment? Show your steps. b) How would your results change if there was a $30 (CAD) tax for any transaction on the currency exchange market? This is a $30 (CAD) tax to convert Canadian dollars into USD and a $30 (CAD) tax to convert USD into Canadian dollars. Show your steps. c) Now instead of the $30 (CAD) tax, assume there a 5% Canadian tax to convert US dollars into CAD but no tax to convert CAD into USD. Which is the better investment? Show your steps