3. (Ch. 3) Carry Trade a. Explain "carry trade." ( 3 points) b. If the interest rates for the GBP, USD, and JPY are 6%,4%, and 1%, respectively, and you would like to have a carry trade, which currency would you like to borrow? ( 2 points) Why? (3 points) c. If you have a carry trade, what may you earn? ( 3 points) What risk may you have? ( 3 points) d. What will be expected in practice if everyone in the markets is doing the same thing with you (carry trade)? (3 points) (Ch. 4) Spot Exchange Rate Movements. Suppose you have a " buy EURUSD" position for some units of the EUR. You bought the EUR with the USD at St1( EURUSD) =1.1780 on September 8 (seven days ago). Today is September 15 , with S1 (EURUSD) =1.1850. What is the annualized percent change in the exchange movements in these seven days? (Annualize by multiplying " 360/7")(6 points)