Dries is a risk-neutral investor based London. He intends to exploit the deviations from UIP between AUD and JPY since the Japanese interest rate is 1% while the Australian interest rate is 10%. From the newspaper he reads that AUD is expected to depreciate by 1% against JPY, and the JPY will depreciate by 7% against GBP.

What would be the expected excess return in GBP on his carry trade strategy?

Answer rating: 100% (QA)

3 spot exchange rate S between the yen and the euro is currently ... View the full answer