A. The Canadian currency has actually appreciated in value because the inflation rate in Canada was less than in Italy. The amount by which the Canadian currency has appreciated is the difference between the inflation rates in the two countries.

B. Both of these inflation rates will effect the exchange rate of the currencies of the two countries. The appreciation of the Canadian dollar is equal to the difference between Italian inflation and Canadian inflation.

C. The appreciation of the Canadian dollar is equal to the difference between the Italian inflation (10%) and the Canadian inflation (5%). Because the Italian inflation was higher than the Canadian inflation, the Canadian currency has kept more of its value and has appreciated against the Italian currency.

D. The appreciation of the Canadian dollar is equal to the difference between Italian inflation and Canadian inflation. Though the difference is 5%, the Canadian currency has appreciated because the inflation in Canada was lower than the Italian inflation and the Canadian currency has kept more of its value.