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Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000 - 2009. Note that interest rates are one -year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$ 1.9120 per $ on January 1, 2000. Fill out columns (4) - (7) and compute the total dollar profits from this carry trade over the ten-year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round intermediate calculations. Round interest rate spread, rate of appreciation, and difference between the two to 2 decimal places. Round profit values to nearest dollar value. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 İNZ$(%) 6.85 7.02 5.23 6.26 6.20 6.99 7.60 8.35 9.42 5.42 İs(%) 6.66 6.16 2.60 1.61 1.62 3.26 5.00 5.49 4.38 2.16 SNZS/S 2.2631 2.4047 1.9149 1.5262 1.3877 1.4714 1.4214 1.3026 1.7144 1.3774 INZS-is 0.08 0.75 eNZS/S (4)-(5) $ Profit

Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000 - 2009. Note that interest rates are one -year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$ 1.9120 per $ on January 1, 2000. Fill out columns (4) - (7) and compute the total dollar profits from this carry trade over the ten-year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round intermediate calculations. Round interest rate spread, rate of appreciation, and difference between the two to 2 decimal places. Round profit values to nearest dollar value. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 İNZ$(%) 6.85 7.02 5.23 6.26 6.20 6.99 7.60 8.35 9.42 5.42 İs(%) 6.66 6.16 2.60 1.61 1.62 3.26 5.00 5.49 4.38 2.16 SNZS/S 2.2631 2.4047 1.9149 1.5262 1.3877 1.4714 1.4214 1.3026 1.7144 1.3774 INZS-is 0.08 0.75 eNZS/S (4)-(5) $ Profit

International Financial Management
International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter20: Short-term Financing
Section: Chapter Questions
Problem 3IEE
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Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One - year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZS) are provided below for the period 2000 - 2009. Note that interest rates are one-year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$ 1.9120 per $ on January 1, 2000. Fill out columns (4)-(7) and compute the total dollar profits from this carry trade over the ten - year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round intermediate calculations. Round interest rate spread, rate of appreciation, and difference between the two to 2 decimal places. Round profit values to nearest dollar value. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 İNZS(%) 6.85 7.02 5.23 6.26 6.20 6.99 7.60 8.35 9.42 5.42 İş(%) 6.66 6.16 2.60 1.61 1.62 3.26 5.00 5.49 4.38 2.16 SNZS/S J 2.2631 2.4047 1.9149 1.5262 1.3877 1.4714 1.4214 1.3026 1.7144 1.3774 INZS - is 0.08 0.75 eNzs/s (4)-(5) $ Profit
Transcribed Image Text:Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One - year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZS) are provided below for the period 2000 - 2009. Note that interest rates are one-year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$ 1.9120 per $ on January 1, 2000. Fill out columns (4)-(7) and compute the total dollar profits from this carry trade over the ten - year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round intermediate calculations. Round interest rate spread, rate of appreciation, and difference between the two to 2 decimal places. Round profit values to nearest dollar value. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 İNZS(%) 6.85 7.02 5.23 6.26 6.20 6.99 7.60 8.35 9.42 5.42 İş(%) 6.66 6.16 2.60 1.61 1.62 3.26 5.00 5.49 4.38 2.16 SNZS/S J 2.2631 2.4047 1.9149 1.5262 1.3877 1.4714 1.4214 1.3026 1.7144 1.3774 INZS - is 0.08 0.75 eNzs/s (4)-(5) $ Profit
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