Answer (B) is correct . After a year’s time, a single Canadian dollar now fetches fewer U.S. dollars, indicating a loss of purchasing power (depreciation). The spread is 5.56% [($.90 – $.85) ÷ $.90].
Answer (A) is incorrect because The Canadian dollar will depreciate rather than appreciate.
Answer (C) is incorrect because The Canadian dollar will depreciate rather than appreciate, and the spread is 5.56%.
Answer (D) is incorrect because Depreciation by 5.88% results from using .85 in the denominator instead of .90.
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