4. Based on your answers to questions 2 and 3, given perfect hindsight about interest rates and exchange rate changes during the assigned time period you should have: Invested/ borrowed (choose one) in the US and invested / borrowed (choose one) in foreign country.

2003 2.3 1.8 Work Sheet: Statistical Report Country five-year time period 2001 2002 Inflation rate: US 2.8 1.6 Inflation Rate: Foreign Country 1.7 0.6 Interest Rate: US 3.7 1.7 Interest Rate: Foreign country 2.1 1.6 % Change in CD SR ( Indirect quote) 10.7 -3.3 % Change in CD SR ( Direct quote) [ 1/(1 + % change in IQ)] -1 2004 2.7 2.8 1.6 1.8 -3.1 2005 3.4 4.6 3.5 3.8 -0.1 2006 Geometric Ave 3.2 4.6 5.2 1.2 1 4.9 -3.4 -5.9 PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate ( For T) Suggest investment Strategy based on IFE: 2003 2.3 1.8 Work Sheet: Statistical Report Country five-year time period 2001 2002 Inflation rate: US 2.8 1.6 Inflation Rate: Foreign Country 1.7 0.6 Interest Rate: US 3.7 1.7 Interest Rate: Foreign country 2.1 1.6 % Change in CD SR ( Indirect quote) 10.7 -3.3 % Change in CD SR ( Direct quote) [ 1/(1 + % change in IQ)] -1 2004 2.7 2.8 1.6 1.8 -3.1 2005 3.4 4.6 3.5 3.8 -0.1 2006 Geometric Ave 3.2 4.6 5.2 1.2 1 4.9 -3.4 -5.9 PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate ( For T) Suggest investment Strategy based on IFE