Please indicate whether the following statements are True, False or Uncertain (1 mark). Support your answers with detailed justifications (2 marks).

1. If the expected path of 1-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, the expectations theory predicts that the bond with the highest interest rate is the one with a maturity of five years.

2. According to the liquidity premium theories, yield curve is flat when short rates are expected to stay same in future.

3. The term structure of interest rates describes the relationship among interest rates on bonds with the same maturity but different risk, liquidity, tax consideration.

4. If the 2021 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, the strong-form of purchasing power parity theory predicts that, during 2021, the value of the Canadian dollar in terms of Mexican pesos will fall by 2 percent.