Suppose the spot exchange rate on 1 Canadian dollar is equal to 0.7319 U.S. dollars and the 90-day forward exchange rate on 1 Canadian dollar is equal to 0.7304 U.S. dollars, while the nominal interest rate on a one-year U.S. Treasury bill is 3.5 percent. Given that the interest rate parity theory accurately captures the relationship between Canadian and U.S. interest rates, what is the current nominal interest on a one-year security issued by the Canadian government?
The answer is 4.3%
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