You observe the following spot exchange rate and interest rate quotations for New Zealand, Japan, and the United States. In addition, your firm has prepared forecasts for the spot exchange rate in one year, also listed below.

Spot Expected: New Zealand 0.67 USD per NZD, Japan 102 JPY per USD

Spot One Year Exchange Rate: 0.71 USD per NZD, 106 JPY per USD

Exchange Rate Interest Rate: 2.5%(New Zealand), 0.25%(Japan), 1% (United States)

a. Comparing rates of return. Please calculate the expected rate of return for each currency from the standpoint of a US dollar investor. (Please include four decimal places.) Does uncovered interest rate parity hold?

b. Suppose the spot exchange rate for the NZD depreciates to 0.65. Holding the other variables equal, does the expected return on NZD deposits increase or decrease? Explain in words why this is so.

c. Please calculate the expected return on NZD deposits from the standpoint of a Japanese investor.

d. Calculate the spot exchange rate for the NZD and JPY that is consistent with uncovered interest rate parity.