International and Financial Economics

Project description
1. A UK based investor has £A to invest for 1 year. Compare all nine possible combinations of %-returns from two investment opportunities, UK and USA, given in the table below. Fill in the table and fully justify your answers in words below it.

2a. A UK based international financial investor is faced with the following numerical information:
£A0 =£10,000,000; Investment period 1 year; i%UK = 3.5% per annum;
i%USA = 3.25% per annum; ER0 : 0.6500£ = 1$
Find, and interpret ERe if uncovered interest parity holds.

2b. Which currency has appreciated and which has depreciated and why is this as expected?

3. Define UIP using a numerical example as part of your answer. (500 Words)

This is all my assignment, but you just need to answer question 3.

NB: Show and describe all your workings. Use full sentences, not bullet points, in all your answers.