Question: M I'm not sure what I'm doing wrong. Can someone help me figure this out? Suppose you conduct currency carry trade by borrowing $1,000,000 at
M
I'm not sure what I'm doing wrong. Can someone help me figure this out?
Suppose you conduct currency carry trade by borrowing $1,000,000 at the start of eacn year ana investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000-2009. Note that interest rates are one-year interbank rates on January 1 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$1.9118/$ on January 1, 2000. Fill out columns 4 - 7 and compute the total dollar profit from this carry trade over the 10-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. Year (4) - (5) $ Profit Inzs(%) 6.83 is(%) 6.65 SNZSIS 2.2629 Inzs - is 0.18 eNZ$1$ 18.36 2000 -18.18 2001 7.00 6.15 2.4045 0.85 25.77 -24.92 2002 5.21 2.59 1.9147 2.62 0.15 2.47 2003 6.24 1.60 1.5260 4.64 -20.18 24.82 2004 6.18 1.61 1.3875 4.57 31.99 -27.42 -23.05 -181,849 -249,215 24,683 248,199 319,944 267,663 282,517 347,257 153,658 312.132 3.25 1.4712 3.72 26.77 2005 2006 6.97 7.58 4.99 1.4212 2.59 -25.66 28.25 34.73 2007 8.33 5.48 1.3024 -31.88 2.85 5.03 2008 9.40 4.37 1.7142 -10.34 15.37 2009 5.40 2.15 1.3772 3.25 -27.96 31.21 | Answer is complete but not entirely correct. Year $ Profit Inzs(%) 6.83 is(%) 6.65 SNZSIS 2.2629 InZs - is 0.18 ENZ$1$ 18.36 (4) (5) -18.18 2000 2001 7.00 6.15 2.4045 0.85 25.77 X -24.92 x 2002 5.21 2.59 2.62 0.15 X 2.47 x 24.82 X 2003 6.24 1.9147 1.5260 1.3875 1.60 4.64 -20.18 2004 6.18 1.61 4.57 -27.42 x 31.99 X -181,849 -249,215 X 24,683 248,199 X 319,944 X 267,663 X 282,517 X 347,257 X 153,658 312,132 2005 6.97 3.25 1.4712 3.72 -23.05 X 26.77 X 2006 7.58 4.99 1.4212 2.59 -25.66 X 28.25 X 2007 8.33 5.48 1.3024 2.85 -31.88 X 34.73 X 2008 9.40 4.37 5.03 -10.34 X 15.37 x 1.7142 1.3772 2009 5.40 2.15 3.25 -27.96 31.21 X
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