UMB is considering in launching a new Absolute Currency Return Fund.In order to establish a currency hedging strategy, Caleb gathers the following information about foreign exchange rates, spot rate, forward rate, inflation and interestrates.

Exhibit 5

USD/GBP : 1.6500

CHF/USD :1.8460

Spot rate USD/GBP : 1.8328

90-day forward rate USD/GBP: 1.8432

CAD/USD spot rate : 1.18

Expected U.S. inflation : 4%

Expected Canadian inflation : 2%

U.S. Interest rate : 8%

Canadian Interest rate : 5%

Factor 1:Currency appreciation/depreciation over time should just offset differences in interest rates

1.Based on the data presented inExhibit 5and according to relative purchasing power parity:

A. The Canadian dollar will appreciate by 2% and expected CAD/USD spot rate will be 1.1564.

B. The U.S. dollar will depreciate by 2% and expected CAD/USD spot rate will be 1.2036.

C. The Canadian dollar will depreciate by 2% and expected CAD/USD spot rate will be 1.1564.

2.Based on the data presented inExhibit 5,the annualized forward GBP is discount or premium for theUSD/GBP(Spot rate: $1.8328 and forward rate: $1.8432) quote:

A. 2.27%, discount and GBP is a weak currency.

B. 2.27%, Premium and GBP is a strong currency.

C. 2.27%,premium and the USD is a strong currency.