The spot rate of U.S. dollars for Canadian dollars was $1.2/C$1. The inflation rate in Canada is 12.7% while the inflation rate in US is 2%. Based on the theory of Relative PPP, the expected spot (E(S)) exchange rate ofU.S. dollars for Canadian dollars should be approximately: *

$ 1.38/ C$

$ 1.33/ C$

$ 1.22/ C$

$ 1.09/ C$