Consider a two-country open economy, consisting of United States (home country) and Japan (foreign country) and answer the following questions:

A). Define the Risk Adjusted Uncovered Interest Rate Parity (RAUIP) by explaining every term and discuss its economic implications. (maximum 500 words) (15%)

b. Critically discuss and evaluate the main types of risk that investors face when investing in a foreign bond.

c. If the interest rate on US bonds is = 4% and the interest rate on Japanese bonds is = 1%, analytically present how the RAUIP could rationalise any expected depreciation or appreciation of the dollar.