1. Suppose you expect the British pound to depreciate by 6 percent over the next year. Assume the Canadian interest rate is 4 percent. What interest rate would be needed on pound securities, such as government bonds, for you to be indifferent between buying those securities with your dollars today and then selling them in a year in exchange for dollars and buying Canadian securities?
2. Discuss why you might want to hold a US Treasury bill if the return was 5 percent when you could make 5.5 percent by holding a Canadian Treasury bill.