Wichita Agricultural Products is an American company based in Wichita. Wichita Agricultural Products has a subsidiary in Canada that buys grain from Canadian producers and then transports the grains to the United States, where they are sold. This Canadian subsidiary is Wichita Agricultural Products only international business, and all of Wichita Agricultural Products sales are in the United States. Wichita Agricultural Products just received an offer of $50 million from Kansas City Food Products to buy the Canadian subsidiary. Wichita Agricultural Products thinks this price is a reasonable price for its Canadian subsidiary and is considering whether to sell it.

a. (6 points) A few hours after Wichita Agricultural Products received the offer for its Canadian subsidiary, several events occurred that make the company believe that the Canadian dollar will weaken substantially in the future. Will the likely depreciation of the Canadian dollar increase, decrease, or have no impact on the likelihood that Wichita Agricultural Products will accept the offer and sell its subsidiary for $50 million? Briefly explain.

b. (6 points) Suppose instead that nothing has happened to cause Wichita Agricultural Products to expect the Canadian dollar to depreciate. Instead, a news report today about higher expected U.S. inflation has caused the risk-free interest rate in the U.S. to increase. Do you think the new expectation of higher U.S. inflation (and a higher U.S. interest rate) will increase, decrease, or have no impact on the likelihood that Wichita Agricultural Products will accept the offer and sell its Canadian subsidiary for $50 million? Briefly explain.