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Part $1$

If the rate of return is $3$ percent in Mexico and $1$ percent in$$ Canada, the

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Part $1$

A$.$

Mexican peso is expected to depreciate against the Canadian dollar by $2$ percent.

B$.$

Mexican peso is expected to appreciate against the Canadian dollar by $2$ percent.

C$.$

rate of return in Mexico is expected to fall to $1$ percent.

D$.$

rate of return in Canada is expected to rise to $3$ percent.

E$.$

law of one price predicts a single international rate of return between $3$ percent and $1$ percent.