If an investor borrows funds in currency with a low interest rate and loans those funds in a currency with a higher interest rate but the investor does not acquire a forward contract that assures an acceptable exchange rate for the loaned currency,the transaction is called a (an)________________ transaction.
A)ill-advised
B)currency swap gamble
C)carry trade
D)uncovered interest arbitrage

Question

Quizplus · Accepted Answer

An uncovered interest arbitrage transaction is when an investor borrows funds in currency with a low interest rate and loans those funds in a currency with a higher interest rate but does not acquire a forward contract that assures an acceptable exchange rate for the loaned currency. This is a risky strategy as exchange rate fluctuations can result in losses.

If an Investor Borrows Funds in Currency with a Low