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Today, a U . S . dollar can be exchanged for 3 New Zealand dollars or for 1 . 6 Canadian dollars. The one -
Today, a US dollar can be exchanged for New Zealand dollars or for Canadian dollars. The oneyear CD deposit rate is percent in New Zealand, is percent in the United States, and is percent in Canada. Interest rate parity exists between the United States and New Zealand and between the United States and Canada. The international Fisher effect exists between the United States and New Zealand. You expect that the Canadian dollar will be worth $ at the end of one year.
Karen based in the United States invests in a oneyear CD in New Zealand and
sells New Zealand dollars one year forward to cover her position.
Marcia who lives in New Zealand invests in a oneyear CD in the United States
and sells US dollars one year forward to cover her position.
William who lives in Canada invests in a oneyear CD in the United States and
does not cover his position.
James based in the United States invests in a oneyear CD in New Zealand and
does not cover his position.
Based on this information, which person will be expected to earn the highest return
on the funds invested? If you believe that multiple persons will tie for the highest expected return, name each of them. Briefly explain.
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