Evaluate a proposed scheme to borrow at 7% from a New Zealand bank, convert to Brazilian currency, and deposit in a Brazilian bank at 15% for a 8-percentage points profit over a year. What does the uncovered interest rate parity say about this scheme

The scheme you're proposing is known as a carry trade, which involves borrowing in a low-interest rate currency (in this case, New Zealand dollars), converting it to a high-interest rate currency (Brazilian Real), and then investing it in a high-interest rate country (Brazil). The aim is to exploit the interest rate differential between the two countries, which in this case is 8% (15% - 7%).

However, according to the Uncovered Interest Rate Parity (UIP), this scheme might not be as profitable as it initially seems. The UIP states that the expected return on domestic assets will be equal to the expected return on foreign assets, once the foreign exchange risk is taken into account.

In other words, the difference in interest rates between two countries should be equal to the expected change in exchange rates between those countries. If the Brazilian interest rate is 8% higher than in New Zealand, then the New Zealand dollar is expected to appreciate by 8% against the Brazilian Real over the same period.

This means that, although you're earning more interest in Brazil, you're expected to lose out when you convert the Brazilian Real back to New Zealand dollars due to the appreciation of the New Zealand dollar.

Therefore, the UIP would suggest that there's no guaranteed profit from this scheme, as the potential gains from the interest rate differential could be offset by the changes in exchange rates.