Just want to make sure my answers are correct, shown work would be helpful. Thanks! My country numbers are below along with US numbers.
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 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 1.53% 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 3.8084% 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 TQ5. Assume that you could both bormw and invest at the average interest rates 7 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 arbitrage during the assigned time period if you followed the strategy chosen in (14. Use the geometric mean to calculated the return profit:1,000,000(1+UCRRus)"5-1,000,000(1+UCRRmI)"5 Work Sheet: Statistical Report 5 79,017.23 Country ve-year time period 2001 2002 2003 2004 2005 2006 Geometric Ave Inflation rate: US 2.8 1.6 2.3 2.7 3.4 3.2 Inflation Rate: Foreign Country 1.7 0.6 1.8 2.8 4.6 4.6 Interest Rate: US 3.7 1.7 1.2 1.6 3.5 5.2 Interest Rate: Foreign Country 2.1 1.6 1 1.8 3.8 4.9 % Change in CD SR ( Indirect quote) 10.7 -3.3 -3.4 -3.1 -0.1 -5.9 % Change in CD SR ( Direct quote) [1/(1 + % change in IQ)] -1 PPP Implications: Annual Uncovered Rate ( For US) Annual Uncovered rate ( For T) Suggest investment Strategy based on IFE: Work Sheet: Statistical Report Country ve-year time period 2001 2002 Inflation rate: US 0.028 0.016 Inflation Rate: Foreign Country 0.017 0.006 Interest Rate: US 0.037 0.017 Interest Rate: Foreign Country 0.021 0.016 % Change in CD SR ( Indirect quote) 0.107 -0.033 % Change in CD SR ( Direct quote) -0.097 0.034 [ 1/(1 + % change in IQ)] -1 PPP Implications: Annual Uncovered Rate ( For US) 0.011 0.010 Annual Uncovered rate ( For T) 0.011 -0.010 Suggest investment Strategy based on IFE
