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You execute a carry trade in which you borrow 1 0 , 0 0 0 British pounds and invest in euros. You also use $
You execute a carry trade in which you borrow British pounds and invest in euros. You also use $ of your own money. The duration of the trade is one year. The interest rates and exchange rates are shown in the following:
Pound interest rate:
Euro interest rate:
Current spot rate: $ and
You use the current exchange rates as forecasts for those in one year.
What profit would you expect as a percentage of your own fund?
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