What is the magnitude of the risk premium

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The one-year interest rate on Swiss bonds is 5 percent, and the interest rate on New Zealand bonds is 2 percent. It you believe that the New Zealand dollar will appreciate by 3.4 percent in the coming year (against the Swiss francs) and that the uncovered interest rate parity holds due to higher default risk in one of the countries, which country do you think is paying a positive risk premium on its bonds, New Zealand or Switzerland? What is the magnitude of the risk premium (in percentage point)? Explain.

Reference no: EM133079510

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