Assume that the interest rate on borrowings in Japan is 3 percent while the interest rate on bank deposits in a U.S. bank is 5 percent. Laura, an active currency trader, borrows in Japanese yen, converts the money into U.S. dollars and deposits it in a U.S. bank. Laura is engaging in

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Laura is engaging in a carry trade, which involves borrowing in a currency with a low interest rate (Japanese yen) and investing in a currency with a higher interest rate (U.S. dollars) to profit from the interest rate differential.

Assume That the Interest Rate on Borrowings in Japan Is