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 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.

SHOW ALL WORK

Short - Term Interest Rates Annual Percent
Year	1995	1996	1997	1998	1999	2000
Malaysia	5.5	6.4	6.4	6.9	3.5	2.9
U.S.	5.9	5.4	5.6	5.5	5.3	6.5

Exchange Rates Percent appreciation (+) or depreciation (-) of the U.S. dollar against local currency.
Year	1995	1996	1997	1998	1999	2000
Malaysia	- 4.4	0.3	12.0	39.3	- 3.2	0.0
U.S.	- 5.6	4.5	7.7	4.8	- 1.6	4.9

Consumer Price Index Percent change from year ago
Year	1995	1996	1997	1998	1999	2000
Malaysia	3.4	3.5	2.7	5.3	2.7	1.5
U.S.	2.8	2.9	2.3	1.5	2.2	3.4

Always try to use the geometric mean method when calculating averages of rate of returns or percentages.