Question: Given the information below and assuming efficient markets in Canada and the U.S., answer the following questions: a. What do the financial markets suggest for

Given the information below and assuming efficient markets in Canada and the U.S., answer the following questions:

a. What do the financial markets suggest for inflation in Canada next year?

b. Estimate today's one-year forward exchange rate between the US dollar and Canadian dollar.

Assumptions

Canada

USA

Spot exchange rate (C$/$)

1.3264

1.3264

One-year Treasury bill rate

3.600%

4.200%

Expected inflation rate

Unknown

1.300%

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