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Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for
Required: Suppose you conduct currency carry trade by borrowing $1 million 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 1st 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\$1.9112 per \$ on January 1 , 2000. Fill out columns (4) - (7) and compute the total dollar profits from this carry trade over the ten-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. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round intermediate calculations. Round interest rate spread, rate of appreciation, and difference between the two to 2 decimal places. Round profit values to nearest dollar value
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