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Suppose you conduct currency carry trade by borrowing $ 1 million at the start of each year and investing in the New Zealand dollar for
Suppose you conduct currency carry trade by borrowing $ million at the start of each year and investing in the New Zealand dollar for
one year. Oneyear interest rates and the exchange rate between the US dollar $ and New Zealand dollar NZ$ are provided below
for the period Note that interest rates are oneyear interbank rates on January each year, and that the exchange rate
is the amount of New Zealand dollar per US dollar on December each year. The exchange rate was NZ$ per $ on January
Fill out columns and compute the total dollar profits from this carry trade over the tenyear 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
decimal places. Round profit values to nearest dollar value.
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