For points lying to the left of the interest rate parity (IRP) line, covered interest arbitrage is not possible from a U.S. investor's perspective, but is possible from a foreign investor's perspective.

Question

Quizplus · Accepted Answer

Covered interest arbitrage is possible for a foreign investor when the foreign interest rate, adjusted for the forward exchange rate, offers a higher return than the domestic rate, which occurs when points lie to the left of the IRP line.

For Points Lying to the Left of the Interest Rate