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The Authors Describe an Application of Uncovered Interest Arbitrage (UIA)

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Essay

The authors describe an application of uncovered interest arbitrage (UIA) known as "yen carry trade." Define UIA and describe the example of yen carry trade. Why would an investor engage in the practice of yen carry trade and is there any risk of loss or lesser profit from this investment strategy?


Definitions:

Psychology

The scientific study of the human mind and behavior.

Sociology

Sociology is the study of society, social relationships, and social institutions, examining how human behavior and consciousness are shaped by surrounding cultural and social structures.

Group Dynamics

The study of the behaviors and psychological processes occurring within a social group, or between social groups.

Essentialism

The belief that entities have a set of immutable characteristics that define their essence, often applied to social categories like gender or race.

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