You are an investment manager in Peru. You see different interest rates around the world and your foreign exchange trading team (as always staffed by Stern alums) has provided you with the current spot rate and an expected future spot rate between the Peruvian and Japanese currencies. *Current spot exchange rate is 34 Yen per Peruvian Peso. *The 1 year interest rate on the Japanese Yen-denominated bank deposit is 4.5% *The 1 year interest rate on the Peruvian Peso-denominated bank deposit is 8.0% *Expected future spot rate in 120 days is 35 Yen per Peruvian Peso. In which country will you earn the higher rate of return? (2pts) Peru Roughly speaking (we allow for rounding errors): If you invested 3 million pesos (converted to Yen) into a Japanese bank and then returned it using this expected future spot rate and assuming it turned out to be accurate, how much more money would our firm make or lose in Japan than our home country of Peru (be sure to note if this was a gain or loss)? (3pts) 0.12 M Loss (accept some rounding errors) aka 120 Million Let's pretend the exchange rate ends up actually being around 33 Yen per Peruvian Pesos at the end of the period. Would the investor be better off (make money) or worse off (lose money) if they had taken money out of Peru and invested it in the Japan uncovered as depicted above? (That is better or worse off compared to if they just kept the money in Peru) (2pts)