Suppose the one-year riskless interest rate in Canada is 3% and the one-year riskless interest rate in Europe is 5%. Then according to the Uncovered Interest Parity, investors must be expecting:

(a) the Canadian dollar to appreciate against the euro by 2% during the next year.

(b) the Canadian dollar to depreciate against the euro by 2% during the next year.

(c) the euro to appreciate against the Canadian dollar by 2% during the next year.

(d) the Canadian dollar to appreciate against the euro by -2% (minus 2 percent) during the next year.

(e) None of the above.

2. (9 points) If there is an excess demand for money in the domestic money market then:

(a) the interest rate falls to restore the equilibrium.

(b) the interest rate rises to restore the equilibrium.

(c) the real money supply shifts left to make an equilibrium.

(d) the real money supply shifts right to make an equilibrium.

(e) A and C

3. (5 points) If the British-pound/Canadian-dollar exchange rate is 0.50 /CAD, how much will a100 British sweater cost in Canadian dollars (CAD)?

(a) CAD$50

(b) CAD$100

(c) CAD$200

(d) CAD$20