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I having a little trouble knowing if my answers here are correct. Can you please check to see if my answers highlighted in yellow are
I having a little trouble knowing if my answers here are correct. Can you please check to see if my answers highlighted in yellow are correct? If not, why are they not correct and why?
Country Period Inflation Rate US Inflation Rate: NL Interest Rate: US Interest Rate: NL % Change in NK SR (Indirect Quote) % Change in NK SR (Direct Quote) PPP Implications: Annual Uncovered Rate (For US) Annual Uncovered Rate (For Norway) Annual Profit on 1M $ Norway Geometric Average 2001 2002 2003 2004 2005 2006 2.80% 1.60% 2.30% 2.70% 3.40% 3.20% 2.66% 5.10% 3.90% 2.20% 1.40% 1.50% 1.70% 2.62% 3.70% 1.70% 1.20% 1.60% 3.50% 5.20% 2.81% 7.20% 6.90% 4.10% 2.00% 2.20% 3.10% 4.23% 2.10% -11.20% -11.40% -4.80% -4.40% -5.00% -5.89% 6.264% NKreal terms, the NK is slightly undervalued. The NK should have apprecaited In Appreciated on average 6.26% per year against USD 0.040% 6.264%; however, the PPP increase is 0.04% 10.76% -3.25% ### Questions 1) US dollar appreciated / depreciated in real terms against the currency of foreign country. 2) During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? 3)During the assigned period, what was the average uncovered rate of return from the foreign country's viewpoint 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. 5) 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 your total profit in dollars using uncovered interest arbitrage during the assigned time period if you followed the strategy chosen in Q4. Answer 10.76% -3.25% Borow in US Invest in Norway $ 79,508.77Step by Step Solution
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