Norway 2001-2006

Use geometric instead of arithmetic averages, and use exact instead of approximate method.

Consumer Price index (percent change from year ago) Norway- 2001(3.0),2002 (1.3),2003 (2.5),2004 (0.5),2005 (1.5),2006 (2.3) USA-2001 (2.8) , 2002, (1.6),2003 (2.3),2004 (2.7),2005 (3.4), 2006 (3.2) Exchange Rates ( Percent appreciation (+) or depreciation (-) of the U.S. dollar against local currency Norway-2001(2.1),2002 (-11.2),2003 (-11.4),2004 (-4.8) ,2005 (-4.4),2006 (-0.5) USA-2001 (6.0),2002 (-1.5),2003 (-12.3),2004 (-8.2), 2005 (-1.9), 2006 (-1.5) Short-term interest rates (Annual percent) Norway-2001 (7.2),2002 (6.9),2003 (4.1),2004 (2.0),2005 (2.2),2006 (3.1) USA-2001 (3.7),2002 (1.7),2003 (1.2),2004 (1.6),2005 (3.5), 2006 (5.2)

Please answer the following five questions: Q1. During the assigned time period: US dollar appreciated / depreciated (choose one) in real terms against the currency of foreign country Q2. During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? Q3. During the assigned period, what was the average uncovered rule of relurn from the foreign country's viewpoint? Work Sheet: Statistical Report Country CANADA Four-year time period 1998 1999 2000 2001 Geom Avg Inflation Rate: US 1.5 2.2 3.4 2.8 Inflation Rate: Foreign Country 1.0 1.7 2.7 2.5 Interest Rate: US 5.5 5.3 6.5 3.7 Interest Rate: Foreign Country 5.0 5.2 5.8 2.1 % Change in CD SR (Indirect quote) 7.10 0.10 0.00 4.3 % Change in CD SR (Direct quote) = [1/(1+% change in TQ] - 1 PPP Implications: 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 / horrowed (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 ulice of credit for one million dollars in the US or an equivalent amount in foreign country. Given perfect hindsigtil 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 04. Annual Uncovered Rate (for US) Annual Uncovered Rate (for Canada) Suggest investment strategy based on IFE: Reference Tables International Economic Trends Consumer Price Index Polegom Cle Geometric and Arithmetic Means of Rates and Percentages Cha Das If the rates for years 1, 2, 3 ... Nare R, R of these rates over the years, as follows: R .... . then you can calculate the arithmctic and goometric meanor averages Fr Arithmetic Mean - (R +R +R,+ ..+R /N Free 21 12 Geometric Mean = (1+R, )* (1+R,)*(1+R) **(1+R UN-1 1 13 .5 54 07 0.8 48 08 0 21 205 14 2. 1.7 19 97 11.5 14 10 398.4 12 4. 0 Greece 1.9 35 Note, tant in the geometric mean formula, the percentages are written in decimals. For example, we use 0.10 instead of 10% and-0.02 instead of -2% Also in the end we take the Nth root of the product, where N is the number of years in the averaging Indonesia period Larna It is important to know that the geometric mean is a more accurate measure than the arithmetic mean. Always try to use the geometric mean method when calculating averages of rate of returns or percentages. JH 01 4.8 67 03 Let us assume the following rates of retum for the five year period (2000-2004): Kors Aalida 352 .7 Sa 271 . 5 14 1 1.0 1.5 3.0 3.6 2001) 4.75% 2001 -8% 2002 0.5% 2003 23% 2004 7% Rates of return Netherlandse Nun Zwed Our estimate of the average rate of retum over the 2000-04 period based on: New Arithmctic Mean = (0.0475 -0.08 +0.005 -0.23 +0.07)/5 = 0.0545 = 5.45% Philips South Africa Cleometric Mean -[(1-0.0475)*(1 -0.08)*(1 + 0.005)*(1 +0.23)*(1 + 0.07)]". = (1,02746672)5.1 -0.04973 -4.973% 4973 % is a more accurate measure of the average return over the 2000-04 period than 5.45% Spain Switzerland Thailand 529 21 23 29.: 84 85. 7 34944954. 544 45.0 2462532 United Kingdom 27251216 13 09 12 13 14 13 21 Ured Sale 28 29 23 18 22 34 28 16 23 2736 C 02236 228 224 31 2176 23 Powrch on Fed e rverk of loute Reference Tables International Economic Trend: International Economic Trends Reference Tables 2005 Exchange Rates Parchi precision I+ or 1996 Australa -1.3 Canada 0.5 3.6 31 2004 12 2007 10.1 pronofi U.S. dolar Agamatte local currency 1995 1997 1998 1999 2000 2001 5.3 5.3 18.1 2.4 11.0 12.5 0.7 1.6 7.1 0.1 0.0 4.3 39 17 9.0 10.5 1 177 04 02 02 -03 00 10 139 1.4 139 1.8 242 2010 49 1.4 56 00 2009 16.7 10.8 04 00 2004 11.5 7.1 -118 00 Short-Term Interest Rates Anul 1905 1996 1997 Aurais 7.7 2 .4 CH 5 3 .1 1.6 18.7 135 12.0 chns. 104 90 8.6 Damuk 38 37 Eur Arne 199 50 50 14.9 4.6 4.1 1099 50 52 88 32 33 2000 62 58 92 32 19 2001 49 21 2 32 46 2002 17 2.2 3.8 2.7 35 2003 49 2.7 2.7 2.7 24 2004 55 2.8 1.9 33 21 2005 2006 2007 56 6067 3.5 4.5 1.6 2. 9 51 5.6 23 39 22 Dhe Chile Denmark Euro Arca Indonesia 127 30 NAT 18.4 0.8 -7856 11: 185 lapan 00 47.2 0.7 KOHN -153 Korca Malaysia 3.6 2.9 Medica New Zealand New Zealand Nowy Philippines Norway Philippines Singacor Soun Amica Sweden Switzerland Trand -7.2 2.1 -7.5 12.0 13.1 1.9 13.6 11.0 0.5 18.5 6.0 2.1 154 2.0 242 12.7 SIND -112 12 2.1 213 5.0 -11.4 5.0 2.7 23. 2 -16.9 94 2.0 4. 7 .9.1 -1.3 1.5 14 17 26 6.4 13 26 135 12 12.9 44 163 41 29 150 58 15.0 60 164 42 4.2 34 4.3 10.0 20 128 31 9.9 2620 101 7 40 40 6.5 10 112 41 6.9 0.7 707 30 South Alice 7.3 1. 0 7.5 21 6.1 23 69 22 3.0 73 23 2G 124 54 7. 2 13.9 17.3 225 68 4 7 7.7 17. 1 SWECHS . 2.0 12.5 20.0 4.1 4.1 3.0 71.7 12 4.8 12.0 3.3 44 1.4 10.5 3.9 3.7 33 606 2.4 .15 10. 6 Switzerland Thailand Urhed Kingdom United States Venezwa 021. MH 776 2.9 1. 1 6.0 4.5 190 136. c2 493 67 4.9 12.3 S60 5.3 42 6.0 -10 GS604 6.1 -12.3 384 0.8 -2 177 0.7 -1.9 10.5 12 1.5 2.7 7.9 5. 00 Turkey United Kingdom Linda Bali Vene 10.3 723 6.7 5.9 49,0 762 703 60 CB 548 450 . 24 710 73 55 00 1.2 736 54 53 30 29 6.1 #5 2.1 1.5 824 6.6 3.5 50 10 3.7 97 17 12 370492029.5 230 46 18 28.5 16.0 47 9.5 29.5 28.5 P r in iti ar depresion - at the US and Anim. The value 2004 CAST, the Var 2014 A2De allir 2005 .12. Rosach Division Federal Reserve Bank of St. Louis Roscorch Division Federal Rewrve Bank of 31. lauta Please answer the following five questions: Q1. During the assigned time period: US dollar appreciated / depreciated (choose one) in real terms against the currency of foreign country Q2. During the assigned period, what was the average uncovered rate of return from the US viewpoint for the foreign country? Q3. During the assigned period, what was the average uncovered rule of relurn from the foreign country's viewpoint? Work Sheet: Statistical Report Country CANADA Four-year time period 1998 1999 2000 2001 Geom Avg Inflation Rate: US 1.5 2.2 3.4 2.8 Inflation Rate: Foreign Country 1.0 1.7 2.7 2.5 Interest Rate: US 5.5 5.3 6.5 3.7 Interest Rate: Foreign Country 5.0 5.2 5.8 2.1 % Change in CD SR (Indirect quote) 7.10 0.10 0.00 4.3 % Change in CD SR (Direct quote) = [1/(1+% change in TQ] - 1 PPP Implications: 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 / horrowed (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 ulice of credit for one million dollars in the US or an equivalent amount in foreign country. Given perfect hindsigtil 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 04. Annual Uncovered Rate (for US) Annual Uncovered Rate (for Canada) Suggest investment strategy based on IFE: Reference Tables International Economic Trends Consumer Price Index Polegom Cle Geometric and Arithmetic Means of Rates and Percentages Cha Das If the rates for years 1, 2, 3 ... Nare R, R of these rates over the years, as follows: R .... . then you can calculate the arithmctic and goometric meanor averages Fr Arithmetic Mean - (R +R +R,+ ..+R /N Free 21 12 Geometric Mean = (1+R, )* (1+R,)*(1+R) **(1+R UN-1 1 13 .5 54 07 0.8 48 08 0 21 205 14 2. 1.7 19 97 11.5 14 10 398.4 12 4. 0 Greece 1.9 35 Note, tant in the geometric mean formula, the percentages are written in decimals. For example, we use 0.10 instead of 10% and-0.02 instead of -2% Also in the end we take the Nth root of the product, where N is the number of years in the averaging Indonesia period Larna It is important to know that the geometric mean is a more accurate measure than the arithmetic mean. Always try to use the geometric mean method when calculating averages of rate of returns or percentages. JH 01 4.8 67 03 Let us assume the following rates of retum for the five year period (2000-2004): Kors Aalida 352 .7 Sa 271 . 5 14 1 1.0 1.5 3.0 3.6 2001) 4.75% 2001 -8% 2002 0.5% 2003 23% 2004 7% Rates of return Netherlandse Nun Zwed Our estimate of the average rate of retum over the 2000-04 period based on: New Arithmctic Mean = (0.0475 -0.08 +0.005 -0.23 +0.07)/5 = 0.0545 = 5.45% Philips South Africa Cleometric Mean -[(1-0.0475)*(1 -0.08)*(1 + 0.005)*(1 +0.23)*(1 + 0.07)]". = (1,02746672)5.1 -0.04973 -4.973% 4973 % is a more accurate measure of the average return over the 2000-04 period than 5.45% Spain Switzerland Thailand 529 21 23 29.: 84 85. 7 34944954. 544 45.0 2462532 United Kingdom 27251216 13 09 12 13 14 13 21 Ured Sale 28 29 23 18 22 34 28 16 23 2736 C 02236 228 224 31 2176 23 Powrch on Fed e rverk of loute Reference Tables International Economic Trend: International Economic Trends Reference Tables 2005 Exchange Rates Parchi precision I+ or 1996 Australa -1.3 Canada 0.5 3.6 31 2004 12 2007 10.1 pronofi U.S. dolar Agamatte local currency 1995 1997 1998 1999 2000 2001 5.3 5.3 18.1 2.4 11.0 12.5 0.7 1.6 7.1 0.1 0.0 4.3 39 17 9.0 10.5 1 177 04 02 02 -03 00 10 139 1.4 139 1.8 242 2010 49 1.4 56 00 2009 16.7 10.8 04 00 2004 11.5 7.1 -118 00 Short-Term Interest Rates Anul 1905 1996 1997 Aurais 7.7 2 .4 CH 5 3 .1 1.6 18.7 135 12.0 chns. 104 90 8.6 Damuk 38 37 Eur Arne 199 50 50 14.9 4.6 4.1 1099 50 52 88 32 33 2000 62 58 92 32 19 2001 49 21 2 32 46 2002 17 2.2 3.8 2.7 35 2003 49 2.7 2.7 2.7 24 2004 55 2.8 1.9 33 21 2005 2006 2007 56 6067 3.5 4.5 1.6 2. 9 51 5.6 23 39 22 Dhe Chile Denmark Euro Arca Indonesia 127 30 NAT 18.4 0.8 -7856 11: 185 lapan 00 47.2 0.7 KOHN -153 Korca Malaysia 3.6 2.9 Medica New Zealand New Zealand Nowy Philippines Norway Philippines Singacor Soun Amica Sweden Switzerland Trand -7.2 2.1 -7.5 12.0 13.1 1.9 13.6 11.0 0.5 18.5 6.0 2.1 154 2.0 242 12.7 SIND -112 12 2.1 213 5.0 -11.4 5.0 2.7 23. 2 -16.9 94 2.0 4. 7 .9.1 -1.3 1.5 14 17 26 6.4 13 26 135 12 12.9 44 163 41 29 150 58 15.0 60 164 42 4.2 34 4.3 10.0 20 128 31 9.9 2620 101 7 40 40 6.5 10 112 41 6.9 0.7 707 30 South Alice 7.3 1. 0 7.5 21 6.1 23 69 22 3.0 73 23 2G 124 54 7. 2 13.9 17.3 225 68 4 7 7.7 17. 1 SWECHS . 2.0 12.5 20.0 4.1 4.1 3.0 71.7 12 4.8 12.0 3.3 44 1.4 10.5 3.9 3.7 33 606 2.4 .15 10. 6 Switzerland Thailand Urhed Kingdom United States Venezwa 021. MH 776 2.9 1. 1 6.0 4.5 190 136. c2 493 67 4.9 12.3 S60 5.3 42 6.0 -10 GS604 6.1 -12.3 384 0.8 -2 177 0.7 -1.9 10.5 12 1.5 2.7 7.9 5. 00 Turkey United Kingdom Linda Bali Vene 10.3 723 6.7 5.9 49,0 762 703 60 CB 548 450 . 24 710 73 55 00 1.2 736 54 53 30 29 6.1 #5 2.1 1.5 824 6.6 3.5 50 10 3.7 97 17 12 370492029.5 230 46 18 28.5 16.0 47 9.5 29.5 28.5 P r in iti ar depresion - at the US and Anim. The value 2004 CAST, the Var 2014 A2De allir 2005 .12. Rosach Division Federal Reserve Bank of St. Louis Roscorch Division Federal Rewrve Bank of 31. lauta