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A foreign exchange trader faces the following quotes:
Spot rate (¥/€) 148.0
3-month forward rate (¥/€) 145.0
3-month Japanese yen interest rate (annualized) 1.0%
3-month European euro interest rate (annualized) 2.0%
The trader has a credit line to borrow up to €30,000 (or its yen equivalent). If instead, this trader wants to implement an uncovered interest arbitrage (UIA) strategy, what steps would he or she take? Would this trade be profitable if the realized spot rates in 3 months would be ¥147.0/€?
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