Explain with the aid of a numerical example using an exchange rate of a hypothetical currency 'a' per dollar exchange rate, assuming a spot exchange rate of 120a per dollar, an interest rate of 0.5% in country A, and a dollar interest rate of 7%, what is meant by a 'carry trade' in the foreign exchange market. Make clear the break-even exchange rate of the strategy, and the profits/losses at different exchange rate parities. Explain the profit and loss in both 'a' and dollars of the actual exchange rate in one year's time of 100a per dollar, or 140a per dollar. Also state the break-even exchange rate in one year's time of strategy.

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