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The US interest rate is i$ = 3 % for the next year and the UK...

The US interest rate is i$ = 3 % for the next year and the UK interest rate is i£ = 6%. If I borrow money in UK and invest in US for the next year, uncovered IRP (carry trade) suggests that I will make money if and only if:

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Answer #1

Dollar will appreciate against pound by more than 3 percent or we can also say that pound will depreciate against dollar by more than 3 percent .

Explanation:-As per uncovered IRP ,if interest rate of dollar is lower than pound then dollar will be at premium in future and hence dollar will appreciate.

We have invested in dollars and hence in future we will sell dollar which we will get from Investment at maturity and therefore we will make money only if we will be able to sell dollar at higher rate

Therefore dollar should appreciate by more than 3 %

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