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Problem 6.13 Suppose you conduct currency carry trade by borrowing $1,000,000 at the start of each year and investing in the New Zealand dollar

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Problem 6.13 Suppose you conduct currency carry trade by borrowing $1,000,000 at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000-2009. Note that interest rates are one-year interbank rates on January 1 each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$1.9096/$ on January 1, 2000. Fill out columns 4 - 7 and compute the total dollar profit from this carry trade over the 10-year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Year INZ$(%) is(%) SNZ$/S INZ$ - is eNZS/S (4)-(5) $ Profit 2000 6.61 6.54 2.2607 2001 6.78 6.04 2.4023 2002 4.99 2.48 1.9125 2003 6.02 1.49 1.5238 2004 5.96 1.50 1.3853 2005 6.75 3.14 1.4690 2006 7.36 4.88 1.4190 2007 8.11 5.37 1.3002 2008 9.18 4.26 1.7120 2009 5.18 2.04 1.3750

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