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Design a sequence of currency trades

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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. Confirm 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.

Reference no: EM132494319

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