I need help with question 1 and 4. I did all the calculations already, I just wanted to make sure I got the correct answer for #1 and #4.

100% $ % .0 .00 123 - Default (Ca. 12 BISA fx A B C D Controls hidden. Press ESC to show controls. Dismiss K L M N O Instruction for the Project: 5 6 The following pages contain annual data on interest rates, inflation rates, 7 and percentage change in exchange rates (based on indirect quotes) for foreign 8 countries for the period 1995 - 2007. 9 10 Each one of you is assigned to a foreign country and a six-year time period 11 (1995-2000 or 2001-2006). Please consult the attached list to determine your 12 assigned country and time period. 13 (Note: My country is Norway from (2001-2006) 14 15 Please use the attached sheets to answer the questions listed based on calculations 16 using the data for the assigned country and the US during the assigned time period. 17 18 Use geometric instead of arithmetic averages. 19 20 Use exact instead of the approximate method. 21 22 There is only one correct answer to these questions. You will be graded on 23 whether or not your answers are correct 24 25 Answer the following five question: 26 27 28 Q1: During the assigned time period: 29 US dollar appreciated / depreciated (choose one) in real terms against the 30 currency of foreign country ???????? 31 32 Q2. During the assigned period, what was the average uncovered rate of return 33 from the US viewpoint for the foreign country? UCRR=return foreign + return due to currency 0.94% 34 + Sheet1 +100% $ % .0 .00 123 - Default (Ca... 12 BISA fx A B C D E F G H J K L M N O 35 36 Q3. During the assigned period, what was the average uncovered rate of return 37 from the foreign country's viewpoint? UCRR=return foreign + return due to change in currency 8.2539% 38 39 Q4. Based on your answers to questions 2 and 3, given perfect hindsight about 40 interest rates and exchange rate changes during the assigned time period 41 you should have: 42 43 Invested/ borrowed (choose one) in the US and invested / borrowed 44 (choose one) in foreign country. ??????????? 45 46 47 Q5. Assume that you could both borrow and invest at the average interest rates 48 prevailing in foreign country and in the US during the assigned time period. 49 Also assume that you have a line of credit for one million dollars in the US or 50 an equivalent amount in foreign country. Given perfect hindsight about interest 51 rates and exchange rate changes, please calculate your total profit in dollars 52 using uncovered interest arbitrage during the assigned time period if you 53 followed the strategy chosen in Q4. 54 55 Use the geometric mean to calculated the return profit=1,000,000(1+UCRRus)^5-1,000,000(1+UCRRnw)^5 -$ 45,970.71 56 57 Work Sheet: Statistical Report Work Sheet: Statisti 58 Country Norway Country 59 five-year time period 2001 2002 2003 2004 2005 2006 Geometric Ave five-year time period 200 60 Inflation rate: US 2.8 1.6 2.3 2.7 3.4 3.2 Inflation rate: US 0.02 61 Inflation Rate: Foreign Country 3 1.3 2.5 0.5 1.5 2.3 Inflation Rate: Foreign Country 0.03 62 Interest Rate: US 3.7 1.7 1.2 1.6 3.5 5.2 Interest Rate: US 0.03 63 Interest Rate: Foreign Country 7.2 6.9 4.1 2 2.2 3.1 Interest Rate: Foreign Country 0.07 64 % Change in CD SR ( Indirect quote) 2.1 -11.2 -11.4 -4.8 -4.4 -0.5 % Change in CD SR ( Indirect quote) 0.02 65 % Change in CD SR ( Direct quote) % Change in CD SR ( Direct quote) -0.02 Sheet1 - +100% Y $ % .0 .00 123 - Default (Ca.. 12 Y BISA fx A B C D E F G H J K L M N O 54 55 Use the geometric mean to calculated the return profit=1,000,000(1+UCRRus)^5-1,000,000(1+UCRRnw)^5 -$ 45,970.71 56 57 Work Sheet: Statistical Report Work Sheet: Statisti 58 Country Norway Country 59 five-year time period 2001 2002 2003 2004 2005 2006 Geometric Ave five-year time period 200 60 Inflation rate: US 2.8 1.6 2.3 2.7 3.4 3.2 Inflation rate: US 0.02 61 Inflation Rate: Foreign Country 3 1.3 2.5 0.5 1.5 2.3 Inflation Rate: Foreign Country 0.03 62 Interest Rate: US 3.7 1.7 1.2 1.6 3.5 5.2 Interest Rate: US 0.03 63 Interest Rate: Foreign Country 7.2 6.9 4.1 2 2.2 3.1 Interest Rate: Foreign Country 0.07 64 % Change in CD SR ( Indirect quote) 2.1 -11.2 -11.4 -4.8 -4.4 -0.5 % Change in CD SR ( Indirect quote) 0.02 65 % Change in CD SR ( Direct quote) % Change in CD SR ( Direct quote) -0.02 66 [ 1/(1 + % change in IQ)] -1 [ 1/(1 + % change in IQ)] -1 67 68 PPP Implications: PPP Implications: 69 Annual Uncovered Rate ( For US) Annual Uncovered Rate ( For US) -0.00 70 Annual Uncovered rate ( For Norway) Annual Uncovered rate ( For Norway) 0.00 71 72 73 Suggest investment Strategy based on IFE: Suggest investment Strategy based on IFE: 74 75 Put va 76 fo 77 78 79 80 81 82 83 84 + Sheet1 +100% $ % .0 .00 123 - Default (Ca... 12 Y BISA fx K L M N O P Q R S T U V W X Y 55 - $ 45,970.71 56 57 Work Sheet: Statistical Report 58 Country Norway 59 five-year time period 2001 2002 2003 2004 2005 2006 Geometric Ave 60 Inflation rate: US 0.028 0.016 0.023 0.027 0.034 0.032 0.027 61 Inflation Rate: Foreign Country 0.030 0.013 0.025 0.005 0.015 0.023 0.018 62 Interest Rate: US 0.037 0.017 0.012 0.016 0.035 0.052 0.028 63 Interest Rate: Foreign Country 0.072 0.069 0.041 0.020 0.022 0.031 0.042 64 % Change in CD SR ( Indirect quote) 0.021 -0.112 -0.114 -0.048 -0.044 -0.005 0.052 65 % Change in CD SR ( Direct quote) -0.021 0.126 0.129 0.050 0.046 0.005 0.054 66 [1/(1 + % change in IQ)] -1 67 68 PPP Implications: 69 Annual Uncovered Rate ( For US) 0.002 0.003 -0.002 0.022 0.019 0.009 0.008 Use PPP=(1+home inflation)/(1+forighen inflation)-1 70 Annual Uncovered rate ( For Norway) 0.002 -0.003 0.002 -0.021 -0.018 -0.009 0.008 71 72 73 Suggest investment Strategy based on IFE: 74 75 Put values into decimal 76 for calculations 77 78 79 80 81 82 83 84 85 + Sheet1 +