Use Figure 21.1 to answer the following questions: Suppose interest rate parity holds, and the current six-month risk-free rate in Canada is 1.7 percent. What must the six-month risk-free rate be in Great Britain? In Japan? In European Union?

Figure 21.1

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FIGURE 21.1 EXCHANGE RATE QUOTATIONS FOREIGN EXCHANGE Wk %ch 4wk %ch Wk %ch 4wk %ch Prev Day %ch Inverse Prev Day %ch Inverse A USS buys: day A CADS buys: day Latest Latest rate rate Canada $ +2.6 1.0279 1.0379 -1.0 -0.2 0.9729 US$ 0.9279 0.9635 +1.0 +0.2 -2.6 1.0279 -1.0 -1.6 nil +0.3 0.7955 0.8033 +2.9 1.2571 0.774 0.7742 -1.5 1.292 euro euro +1.6 Japan yen 79.23 78.76 +0.6 +0.2 -0.5 0.0126 Japan yen 77.05 75.85 +0.4 -3.0 0.013 UK pound UK pound 0.6267 +0.2 0.6455 0.6503 -0.7 -0.1 +4.2 1.5492 0.6281 +0.1 +1.5 1.5921 Swiss franc Swiss franc nil 0.9551 0.9647 -1.0 -1.6 +2.9 1.047 0.9288 0.9289 -1.5 +0.3 1.0767 Australia $ 1.0082 Australia $ 1.0193 1.0265 -1.8 -2.1 +1.4 0.9919 0.9811 0.9894 -0.8 -2.0 -1.2 Mexico peso Mexico peso 13.6434 13.7029 -0.6 14.0278 14.2256 -1.4 -0.8 +3.9 0.0713 -0.4 +1.3 0.0733 nil Hong Kong 7.7582 7.7586 -0.1 -0.1 0.1289 Hong Kong 7.5467 7.474 +1.0 +0.1 -2.6 0.1325 Singapore $ +1.8 Singapore $ 0.8065 1.2748 1.2862 -0.9 -1.1 0.7844 1.2399 1.2385 +0.1 --0.9 -0.8 China renminbi +0.9 China renminbi 6.3637 6.367 -0.1 +0.1 0.1571 6.191 6.1348 +0.9 +0.3 -1.7 0.1615 India rupee India rupee 55.27 55.55 -0.5 -1.5 +2.8 0.0181 53.77 53.52 +0.5 -1.4 +0.2 0.0186 Russia rouble Russia rouble 32.3482 33.065 -2.2 -1.5 +6.5 0.0309 31.4723 31.8576 -1.2 -1.3 +3.8 0.0318 Brazil real Brazil real 2.03 2.0183 +0.6 +0.9 +3.1 0.4926 1.9751 1.9446 +1.6 +1.0 +0.5 0.5063 Israel shekel 3.8806 3.8979 -0.4 nil Israel shekel +0.5 +0.2 +1.6 0.2577 3.7756 3.7556 -1.1 0.2649 Supplied by Thomson Reuters. Listings indicative of late afternoon rates. FORWAR D EXCHAN GE 1 уг 3 mo 6 mo 2 yr 3 уг 4 уг Per USS 5 yr 1 mo CS 1.0285 1.0298 1.0316 1.0348 1.0413 1.0495 1.0544 1.0561 1.2572 1.2580 1.2594 1.2639 1.2731 1.2796 1.2871 1.2943 euro 79.21 Yen 79.21 79.21 79.20 79.19 79.18 79.16 79.14 1.5452 £* 1.5488 1.5484 1.5478 1.5469 1.5451 1.5437 1.5478 Per CADS US 0.9723 0.9711 0.9694 0.9663 0.9603 0.9528 0.9484 0.9469 1.2992 1.2930 1.2955 1.3079 1.3256 1.3429 1.3571 1.3669 euro* 68.41 Yen 76.98 76.82 76.57 75.95 74.42 72.49 70.48 1.6082 £* 1.5928 1.5944 1.5965 1.6004 1.6190 1.6279 1.6333 Source: The National Post, FP Investing, June 7, 2012. Used with permission. The most recent figures can be obtained from The National Post newspaper. Dollar Euro Pound Franc Peso Yen CAD 1.2929 Canada 1.0276 1.5924 1.0767 0.0733 0.0130 Japan Mexico Switzerland 79.1899 99.6337 122.7173 82.9777 5.6455 77.0640 17.6482 14.0270 21.7371 14.6979 0.1771 13.6504 1.4789 0.9544 1.2007 0.0680 0.0121 0.9287 U.K. 0.6453 0.8119 0.6762 0.0460 0.0081 0.6280 Euro 0.7735 0.7948 1.2317 0.8328 0.0567 0.0100 U.S. 0.0126 0.9732 1.2582 1.5497 1.0478 0.0713 Source: ICAP plc; historical data prior to 6/9/11: Thomson Reuters Source: online.wsj.com/mdc/public/page/2 3023-keyrates.html