Q1. During the assigned time period: SOUTH AFRICA 1995-2000

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 rate of return from the foreign country's viewpoint?

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.

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.

HELP NEEDED ON Geometric Average and Direct quote and also PPP Implication:

ArithmeticMean = (R1 +R2 + R3 +..+RN )/N

GeometricMean = [(1+R1 )*(1+R2)*(1+ R3 )***(1+RN )]1/N -1

Note, that 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 period.

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.

Country		South Africa
Four- year time period		1995	1996	1997	1998	1999	2000	Geom Avg:
Inflation Rate: US		2.8	2.9	2.3	1.5	2.2	3.4
Inflation rate: Foreign Country		8.7	7.4	8.6	6.9	5.2	5.3
Interest Rate: US		5.9	5.4	5.6	5.5	5.3	6.5
Interest Rate: Foreign Country		13.5	15.0	15.3	16.5	12.9	10.1
% Change in SAR SR (Indirect quote)		2.1	18.5	7.2	20.0	10.6	13.6
% Change in SAR SR (Direct quote) = [1/ (1+% change in IQ)] - 1
PPP Implications:
Annual Uncovered Rate (for US)
Annual Uncovered Rate (for South Africa)
	Suggest Investment strategy based on IFE: