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Fin4375 project




Question;Use geometric instead of arithmetic;averages, and use exact instead of the approximate method when doing your;calculations.;Geometric Mean = [(1+R1)*(1+R2)*(1+ R3)***(1+RN)]1/N -1;Statistical Report Worksheet;Country;Sweden;Six-year time;period;2001;2002;2003;2004;2005;2006;Geom. Avg.;Inflation Rate;US;2.8;1.6;2.3;2.7;3.4;3.2;Inflation Rate;Sweden;2.4;2.2;1.9;0.4;0.5;1.4;Interest Rate: US;3.7;1.7;1.2;1.6;3.5;5.2;Interest Rate;Sweden;4.0;4.1;3.0;2.1;1.7;2.3;% Change in;Sweden SR (Indirect quote);12.7;-6.0;-16.9;-9.1;1.7;-1.3;% Change in;Sweden SR (Direct quote);% Change in;Sweden Sr (Direct quote) =[1/(1+change IQ]-1;PPP Implications;Annual Uncovered Rate (For US);Annual Uncovered Rate (for Canada);Suggestion investment strategy based on;IFE;After you complete the Statistical Report Worksheet above, use it to;answer the five questions listed below based on the calculations using the data;for Sweden and the US during years 2001-2006.;Please answer the;following five questions;Q1.During years;2001-2006;US dollar appreciated / depreciated(choose;one) in real terms against the currency of foreign country.;Q2.During years;2001-2006, what was the average uncovered rate of returnfrom the USviewpoint for the foreign country?;Q3.During years;2001-2006, what was the average uncovered rate of returnfrom the;foreign country's viewpoint?;Q4.Based on your;answers to questions 2 and 3, given perfect hindsight about interest rates and;exchange rate changes during years 2001-2006 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 a line of credit for one million dollars in the US or an equivalent;amount in foreign country. Given perfect hindsight about interest rates and;exchange rate changes, please calculate your total profit in dollars using;uncovered interest arbitrageduring the assigned time period if you;followed the strategy chosen in Q4.


Paper#47732 | Written in 18-Jul-2015

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