Which of the following is not true regarding covered interest arbitrage?
A) Covered interest arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.
B) Covered interest arbitrage involves investing in a foreign country and covering against exchange rate risk.
C) Covered interest arbitrage opportunities only exist when the foreign interest rate is higher than the interest rate in the home country.
D) If covered interest arbitrage is possible, you can guarantee a return on your funds that exceeds the returns you could achieve domestically.
E) All of these are true regarding covered interest arbitrage.

Question

Quizplus · Accepted Answer

Covered interest arbitrage opportunities exist when the foreign interest rate is higher than the interest rate in the home country, but not exclusively. Sometimes, there may not be a direct relationship between the interest rates of two countries and their forward exchange rate premium or discount.

Which of the Following Is Not True Regarding Covered Interest