The risk-free 1-year term deposit rate in the US is 2% and the equivalent deposit in the

UK carries 4% interest. The US Dollar is expected to neither appreciate nor depreciate against

the British Pound () over the following year. Confifirm that Uncovered Interest Rate Parity does

not hold. Then, design a sequence of currency trades, deposits, or loans to exploit this arbitrage

opportunity. Point out which steps in your strategy involve taking on risk and explain the nature

of that risk.