3 Country SINGAPORE 4 Four Year time Period 1995 1996 1997 1998 1999 2000 Geom. Avg % 5 Inflation rate: US 2.8 2.9 2.3 1.5 2.2 3.4 0.025 2.52% 6 Inflation rate: Singapore 1.7 1.4 2 -0.3 0 1.4 0.010 1.03% 7 Interest Rates: US 5.9 5.4 5.6 5.5 5.3 6.5 0.057 5.70% 8 Interest Rates: Singapore 2.6 2.9 4.4 5 2 2.6 0.032 3.25% 9 % Change in CD SR (indirect Quote) -7.2 -0.5 5.4 12.5 1.4 1.8 0.021 2.06% 10 % Change in CD SR (Direct Quote) = [1/(1+% Change in IQ)]-1 0.078 0.005 -0.051 -0.111 -0.014 -0.018 -0.020 -0.020 11 PPP Implications 12 Annual Uncovered Rate (For US) 0.011 0.015 0.003 0.018 0.022 0.020 0.015 13 Annual Uncovered Rate (For Singapore) -0.011 -0.015 -0.003 -0.018 -0.022 -0.019 -0.014 14 Suggest investment strategy based on IFE 15 16 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 cre for one million dollars in the US - 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. 3 Country SINGAPORE 4 Four Year time Period 1995 1996 1997 1998 1999 2000 Geom. Avg % 5 Inflation rate: US 2.8 2.9 2.3 1.5 2.2 3.4 0.025 2.52% 6 Inflation rate: Singapore 1.7 1.4 2 -0.3 0 1.4 0.010 1.03% 7 Interest Rates: US 5.9 5.4 5.6 5.5 5.3 6.5 0.057 5.70% 8 Interest Rates: Singapore 2.6 2.9 4.4 5 2 2.6 0.032 3.25% 9 % Change in CD SR (indirect Quote) -7.2 -0.5 5.4 12.5 1.4 1.8 0.021 2.06% 10 % Change in CD SR (Direct Quote) = [1/(1+% Change in IQ)]-1 0.078 0.005 -0.051 -0.111 -0.014 -0.018 -0.020 -0.020 11 PPP Implications 12 Annual Uncovered Rate (For US) 0.011 0.015 0.003 0.018 0.022 0.020 0.015 13 Annual Uncovered Rate (For Singapore) -0.011 -0.015 -0.003 -0.018 -0.022 -0.019 -0.014 14 Suggest investment strategy based on IFE 15 16 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 cre for one million dollars in the US - 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