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Define the risk adjusted uncovered interest rate parity

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Reference no: EM132951474

Consider a two-country open economy, consisting of United States (home country) and Japan (foreign country) and answer the following questions:

-Define the Risk Adjusted Uncovered Interest Rate Parity (RAUIP) by explaining every term and discuss its economic implications.

-Critically discuss and evaluate the main types of risk that investors face when investing in a foreign bond.

-If the interest rate on US bonds is ???? = 4% and the interest rate on Japanese bonds is ??∗ = 1%, analytically present how the RAUIP could rationalise any expected depreciation or appreciation of the dollar.

Reference no: EM132951474

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