3. An US investor, George Soros, uses the historical data in FX markets and runs a regression (the numeraire currency is always USD, every rate is annualized). Assume the interest rate in the US is 2% and the interest rate in the UK is 4%. He runs a regression of the appreciation rates on the one-year forward premium for US dollars and the GBP exchange rate. George obtains the following results 1 : s0,1yearGBP/USD=00.7fp0,1GBP/USyear Also, George knows that the following relationship always holds: s0,1yearGBP/USD=fp0,1yearGBP/USD+fmr0,1yearGBP/USD Is UIP violated? Which carry trade strategy should George adopt? If he starts with a notional position of 1,000 dollars at the beginning of the year, how much would he expect to make at the end of the year? 3. An US investor, George Soros, uses the historical data in FX markets and runs a regression (the numeraire currency is always USD, every rate is annualized). Assume the interest rate in the US is 2% and the interest rate in the UK is 4%. He runs a regression of the appreciation rates on the one-year forward premium for US dollars and the GBP exchange rate. George obtains the following results 1 : s0,1yearGBP/USD=00.7fp0,1GBP/USyear Also, George knows that the following relationship always holds: s0,1yearGBP/USD=fp0,1yearGBP/USD+fmr0,1yearGBP/USD Is UIP violated? Which carry trade strategy should George adopt? If he starts with a notional position of 1,000 dollars at the beginning of the year, how much would he expect to make at the end of the year