I need help with question 1 and 4. I did all the calculations already, I just wanted to make sure I got the correct answer for #1 and #4.
100% - $ %.O.09 123 Default (ca. - 12 - BISA . BE - I Go + Y E . na fx 4 Instruction for the Project: 6 7 8 The following pages contain annual data on interest rates, inflation rates. and percentage change in exchange rates (based on indirect quotes) for foreign countries for the period 1995 - 2007. 10 11 12 13 Each one of you is assigned to a foreign country and a six-year time period (1995-2000 or 2001-2006). Please consult the attached list to determine your assigned country and time period. (Note: My country is Norway from (2001-2006) 15 16 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. 18 Use geometric instead of arithmetic averages. 20 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 Answer the following five question: 28 29 30 Q1: During the assigned time period: US dollar appreciated / depreciated (choose one) in real terms against the currency of foreign country Appreciated 32 33 Q2. During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? UCRR=return foreign + return due to currency o currency -0.94% + E Sheet1 - Answer the following five question: Q1: During the assigned time period: US dollar appreciated / depreciated (choose one) in real terms against the currency of foreign country Appreciated Q2. During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? UCRR=return foreign + return due to currency -0.94% Q3. During the assigned period, what was the average uncovered rate of return from the foreign country's viewpoint? UCRR=return foreign + return due to change in currency 8.2539% 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 and invested / borrowed choose one) in foreign country. Invested in US and Borrowed in Norway 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 your total profit in dollars using uncovered interest arbitrage during the assigned time period if you followed the strategy chosen in Q4. 100%, $ %0.00 123 Default (Ca... 12 - BISA - ETH- D O Y . na fx | 50 51 52 52 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. 54 SS Use the geometric mean to calculated the return profit=1,000,000(1+UCRRUS)^5-1,000,000(1+UCRRml)45 $ 45,970.71 56 3 1.3 59 59 61 61 62 63 64 65 66 Work Sheet: Statistical Report Country five-year time period 2001 2002 Inflation rate: US 2.8 1.6 Inflation Rate: Foreign country Interest Rate: US 3.71 1.7| Interest Rate: Foreign Country 7.2 % Change in CD SR ( Indirect quote) 2.1 - 11.2 % Change in CD SR ( Direct quote) [1/(1+% change in IQ)] -1 2003 2.3 2.5 1.2 4.1 -11.4 Norway 2004 2005 2.7 3.4 0.5 1.5 1.6 3.5 2 2 .2 -4.8 -4.4 2006 Geometric Ave 3.2 2.3 5.2 3.1 -0.5 Work Sheet: Statisti Country five-year time period 200 Inflation rate: US 0.02 Inflation Rate: Foreign country 0.03 Interest Rate: US 0.03 Interest Rate: Foreign country 0.07 % Change in CD SR ( Indirect quote) 0.02 % Change in CD SR (Direct quote) -0.02 [1/(1+% change in IQ)) -1 68 69 70 PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate ( For Malaysia) PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate (For Malaysia) -0.00 0,00 71 72 Suggest investment Strategy based on IFE: Suggest investment Strategy based on IFE: Put va 76 79 + Sheet1 o 100% - $ % ._.09 123- Default (Ca... - 12 - BISA ES - ETHV OY.. n fx $ 45,970.71 0.027 Work Sheet: Statistical Report Country five-year time period 2001 2002 2003 Inflation rate: US 0.028 0.016 0.023 Inflation Rate: Foreign Country 0.030 0.013 0.025 Interest Rate: US 0.037 0.0171 0.012 Interest Rate: Foreign Country 0.072 0.069| 0.041 % Change in CD SR ( Indirect quote) 0.021 -0.112 -0.114 % Change in CD SR (Direct quote) -0.021 0.126 0.129 [1/(1+% change in 10)] -1 Norway 2004 2005 2006 Geometric Ave 0.027 0.034 0.032 0.005 0.015 0.023 0.018 0.016 0.035 0.052 0.028 0.020 0.022 0.031 0.042 -0.048 -0.044 -0.005 -0.052 0.050 0.046 0.005 0.054 PPP Implications: Annual Uncovered Rate For US) Annual Uncovered rate ( For Malaysia) -0.002 0.003 -0.002 0.022 0.019 0.009 0.002 -0.003 0.002 -0.021 -0.018 -0.009 0.008 Use PPP=(1+home inflation)/(1+forighen inflation)-1 -0.008 Suggest investment Strategy based on IFE: Put values into decimal for calculations + E Sheet1 100% - $ %.O.09 123 Default (ca. - 12 - BISA . BE - I Go + Y E . na fx 4 Instruction for the Project: 6 7 8 The following pages contain annual data on interest rates, inflation rates. and percentage change in exchange rates (based on indirect quotes) for foreign countries for the period 1995 - 2007. 10 11 12 13 Each one of you is assigned to a foreign country and a six-year time period (1995-2000 or 2001-2006). Please consult the attached list to determine your assigned country and time period. (Note: My country is Norway from (2001-2006) 15 16 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. 18 Use geometric instead of arithmetic averages. 20 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 Answer the following five question: 28 29 30 Q1: During the assigned time period: US dollar appreciated / depreciated (choose one) in real terms against the currency of foreign country Appreciated 32 33 Q2. During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? UCRR=return foreign + return due to currency o currency -0.94% + E Sheet1 - Answer the following five question: Q1: During the assigned time period: US dollar appreciated / depreciated (choose one) in real terms against the currency of foreign country Appreciated Q2. During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? UCRR=return foreign + return due to currency -0.94% Q3. During the assigned period, what was the average uncovered rate of return from the foreign country's viewpoint? UCRR=return foreign + return due to change in currency 8.2539% 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 and invested / borrowed choose one) in foreign country. Invested in US and Borrowed in Norway 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 your total profit in dollars using uncovered interest arbitrage during the assigned time period if you followed the strategy chosen in Q4. 100%, $ %0.00 123 Default (Ca... 12 - BISA - ETH- D O Y . na fx | 50 51 52 52 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. 54 SS Use the geometric mean to calculated the return profit=1,000,000(1+UCRRUS)^5-1,000,000(1+UCRRml)45 $ 45,970.71 56 3 1.3 59 59 61 61 62 63 64 65 66 Work Sheet: Statistical Report Country five-year time period 2001 2002 Inflation rate: US 2.8 1.6 Inflation Rate: Foreign country Interest Rate: US 3.71 1.7| Interest Rate: Foreign Country 7.2 % Change in CD SR ( Indirect quote) 2.1 - 11.2 % Change in CD SR ( Direct quote) [1/(1+% change in IQ)] -1 2003 2.3 2.5 1.2 4.1 -11.4 Norway 2004 2005 2.7 3.4 0.5 1.5 1.6 3.5 2 2 .2 -4.8 -4.4 2006 Geometric Ave 3.2 2.3 5.2 3.1 -0.5 Work Sheet: Statisti Country five-year time period 200 Inflation rate: US 0.02 Inflation Rate: Foreign country 0.03 Interest Rate: US 0.03 Interest Rate: Foreign country 0.07 % Change in CD SR ( Indirect quote) 0.02 % Change in CD SR (Direct quote) -0.02 [1/(1+% change in IQ)) -1 68 69 70 PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate ( For Malaysia) PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate (For Malaysia) -0.00 0,00 71 72 Suggest investment Strategy based on IFE: Suggest investment Strategy based on IFE: Put va 76 79 + Sheet1 o 100% - $ % ._.09 123- Default (Ca... - 12 - BISA ES - ETHV OY.. n fx $ 45,970.71 0.027 Work Sheet: Statistical Report Country five-year time period 2001 2002 2003 Inflation rate: US 0.028 0.016 0.023 Inflation Rate: Foreign Country 0.030 0.013 0.025 Interest Rate: US 0.037 0.0171 0.012 Interest Rate: Foreign Country 0.072 0.069| 0.041 % Change in CD SR ( Indirect quote) 0.021 -0.112 -0.114 % Change in CD SR (Direct quote) -0.021 0.126 0.129 [1/(1+% change in 10)] -1 Norway 2004 2005 2006 Geometric Ave 0.027 0.034 0.032 0.005 0.015 0.023 0.018 0.016 0.035 0.052 0.028 0.020 0.022 0.031 0.042 -0.048 -0.044 -0.005 -0.052 0.050 0.046 0.005 0.054 PPP Implications: Annual Uncovered Rate For US) Annual Uncovered rate ( For Malaysia) -0.002 0.003 -0.002 0.022 0.019 0.009 0.002 -0.003 0.002 -0.021 -0.018 -0.009 0.008 Use PPP=(1+home inflation)/(1+forighen inflation)-1 -0.008 Suggest investment Strategy based on IFE: Put values into decimal for calculations + E Sheet1
