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You execute a carry trade in which you borrow 10,000 british pounds and invest in euros. You also use 10,000 of your own money in
You execute a carry trade in which you borrow 10,000 british pounds and invest in euros. You also use 10,000 of your own money in dollar. The duration of the trade is one year. The interest rates and exchange rates are shown in the following:
Pound interest rate: 4%
Euro interest rate: 6%
Current spot rate: $1.20=1 euro and 1.30 euro=1 british pound
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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