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2. Annual interest rates are 2% in Japan and 8% in Australia. Assume that you plan to execute a FX carry trade with a 90-day

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2. Annual interest rates are 2% in Japan and 8% in Australia. Assume that you plan to execute a FX carry trade with a 90-day investment horizon. (a). Does UIP predict an appreciation or depreciation of the Japanese yen over the quarter? By how much, approximately? (b). Suppose that the yen depreciates by 2% during the quarter. How much profit or loss did you make? (c). Was this an arbitrage profit? Explain

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