The following pages contain annual data on interest rates,inflation rates, and percentage change in exchange rates(based on indirect quotes)for foreign countries,including the US,for the period 1995-2007.
My Country is Switzerland, years I need to do is 2001-2006.
I am little lost what to do…Each one of you is assigned to a foreign country and a six-year time period(1995-2000or2001-2006). Please consult the attached list to determine your assigned country and time period. Please use the attached sheets to answer the questions listed based on calculations using the data for the assigned country and the US during the assigned time period. Use geometric in stead of arithmetic averages. Use exact instead of the approximate method. There is only one correct answer to these questions.You will be graded on whether or not your answers are correct.
The necessary information and concepts are all from Chapter4. I will discuss the solution techniques to these problems only during class.I will not discuss them with anyone on an individual basis outside the class.
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 view point for the foreign country?
Q3.During the assigned period,what was the average uncovered rate of return from the foreign country’s viewpoint?
Q4.Basedonyouranswerstoquestions2 and3, given perfect hind sight 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 aline of credit for one million dollars in the US Oran equivalent amount in foreign country.Given perfect hind sight 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 followedthestrategychoseninQ4.
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