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The 90-day interest rates in Canada and U.K. are 2% and 4%, respectively. The spot exchange rate is CAD1.70/ and the 90-day forward rate is

The 90-day interest rates in Canada and U.K. are 2% and 4%, respectively. The spot exchange rate is CAD1.70/ and the 90-day forward rate is CAD1.75/.

(a) (4 points) Assuming that the unbiased expectation hypothesis is being held true, what is the expected appreciation/depreciation rate of the CAD?

(b) (3 points) Assuming that the uncovered interest rate parity (UIRP) is being held true, what is the forward market return in percentage fur carry traders?

(c) (3 points) What is the realized rate of return on investment for those facing a peso problem? Assume that the UIRP is being held true..

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