QUESTION 4

1. The spot exchange rate for $/ Canadian Dollar is 0.75. The interest rates in US is 0.4%, whereas the interest rates in Canada is 0.2%. This means that the forward rate for $/ Canadian Dollar will be higher than 0.75

   True

   False

12.5 points

QUESTION 5

1. Covered Interest Arbitrage brings the market into equilibrium and therefore enables the IRP to hold in the long run.

   True

   False