Uncovered interest arbitrage is buying a country's currency spot and selling that country's currency forward, to make a net profit from the combination of the difference in interest rates between countries and the forward premium on the country's currency.

Question

Quizplus · Accepted Answer

Uncovered interest arbitrage involves investing in a foreign currency with a higher interest rate without hedging the exchange rate risk with a forward contract, aiming to profit from the interest rate differential alone, not from a combination of interest rate differentials and forward premiums.

Uncovered Interest Arbitrage Is Buying a Country's Currency Spot and Selling