Each one of you is assigned to a foreign country and a six-year time period (1995-2000 or 2000-2006). Please consult the attached list to determine your assigned country and time period.

Please use the attached sheets to answer the questions listed based on calculations using the data for the assigned country and the US during the assigned time period.

Use geometric instead of arithmetic averages. Use exact instead of the approximate method.

There is only one correct answer to these questions.You will be graded on whether or not your answers are correct.

Country:

Norway

Q1.During the assigned time period:

US dollarappreciated / depreciated(choose one) in real terms against the currency of foreign country.

Q2.During the assigned period, what was the averageuncovered rate of returnfrom theUSviewpoint for the foreign country?

Q3.During the assigned period, what was the averageuncovered rate of returnfrom the foreign country's viewpoint?

Q4.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 andinvested / borrowed(choose one) in foreign country.

Q5.Assume that you could both borrow and invest at the average interest rates prevailing in foreign country and in the US during the assigned time period. Also assume that you have a line of credit for one million dollars in the US or an equivalent amount in foreign country. Given perfect hindsight about interest rates and exchange rate changes, please calculate yourtotal profit in dollars using uncovered interest arbitrageduring the assigned time period if you followed the strategy chosen inQ4.