Suppose you observe the following spot and forward exchange rates between the US Dollar and the Canadian Dollar:

Spot Exchange Rate One-Year Forward Exchange Rate

Canadian dollar (US Dollar/Canadian Dollar) 0.8932 0.9133

1. The current one-year interest rate on US Treasury securities is 6.89%. if interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? A, 3.63% B. 4.54% C. 4.77% D. 3.86%

2. Which of the following statements is implied by interest rate parity theory?

A. A product bought in one country should have the same price in other countries, adjusted for exchange rate.

B. An investment in one's home country should have the same return as a similar investment in a doreign country.

C. If two countries have the same inflation rate, they should have the same interest rate too.

D. Interest rates in all countries with the same political risk should be the same.