Investment Implications of IRP and the IFE
Response to the following problem:
Today, a U.S. dollar can be exchanged for 3 New Zealand dollars. The 1-year CD (deposit) rate in New Zealand is 7 percent, and the 1-year CD rate in the United States is 6 percent. Interest rate parity exists between the United States and New Zealand. The international Fisher effect exists between the United
Karen (based in the United States) invests in a 1-year CD in New Zealand and sells New Zealand dollars 1 year forward to cover her position.
James (based in the United States) invests in a 1-year CD in New Zealand and does not cover his position
Brian (based in the United States) invests in a 1-year CD in Switzerland and sells Swiss francs 1 year forward to cover his position.
Eric (who lives in Switzerland) invests in a 1-year CD in Switzerland
Tonya (who lives in New Zealand) invests in a 1-year CD in the United States and sells U.S. dollars 1 year forward to cover her position
Based on this information, which person will be expected to earn the highest return on the funds invested? If you believe that multiple persons will tie for the highest expected return, name each of them. Explain