International and Financial Economics
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.