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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:

Confidence Interval

A statistical range, with a certain probability, that is believed to contain the true value of an unknown parameter.

Random Variable

A variable whose values depend on the outcomes of a random phenomenon.

Sample Proportion

The ratio of members in a sample that have a particular characteristic to the total number of members in that sample, often used in statistics to estimate population proportions.

Confidence Coefficient

A value, typically close to 1, that specifies the likelihood that a confidence interval will contain the true population parameter.

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