Suppose you read the following information in the newspapers. The current spot exchange rate of the Canadian dollar per British pound is 2.0. The interest rate on a 1-year British pound deposit is 6%. Moreover, the interest rate on a 1-year Canadian dollar deposit is 4% (Total 25 points).

A. Suppose that the interest parity condition holds. What is the expected exchange rate of the Canadian dollar/British pound over the next year? Explain.

B. Suppose that the expected exchange rate of the Canadian dollar/British pound over the next year is constant at the level of the answer in A. What would happen to the current spot exchange rate if the interest rate on a 1-year Canadian dollar deposit is 6%? Explain.

C. Suppose the forecast for inflation in Britain over the next year is 3%. Then what is the expected inflation rate over the next year in Canada? Explain. (Use the original information).

D. Based on the information in C and the original information, what is the real interest rate in Canada? Explain. E. Due to economic sanctions to Russia, the Russian Ruble depreciated more than 30%, what can the Russian central bank do to prevent the deprecation?