The interest rate on U.S. three-month Treasury bills dropped to very low levels at the end of
Question:
The interest rate on U.S. three-month Treasury bills dropped to very low levels at the end of 2008 and remained there for several years. Starting in January 2009 and ending in December 2016, find data on the three-month Treasury bill rate from Federal Reserve Economic Data (FRED) at the Federal Reserve Bank of St. Louis; find data on the exchange rate of the U.S. dollar against the Korean won from the Bank of Korea Economic Statistics System at http://ecos.bok.or.kr/flex/EasySearch_e.jsp; and from the same source, find data on the Korean 91-day Monetary Stabilization Bond interest rate. Imagine that you borrow dollars at the Treasury bill rate to invest in Korean stabilization bonds, thus doing a carry trade that exposes you to the risk of won/dollar exchange rate fluctuations. As in the Case Study in the text, calculate the total return on your carry trade for every month starting in February 2009 and ending in December 2016.
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
International Economics Theory and Policy
ISBN: 978-0134519579
11th Edition
Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz