Which of the following might discourage covered interest arbitrage even if interest rate parity does not exist?
A) transaction costs
B) political risk
C) differential tax laws
D) All of these are correct.

Question

Quizplus · Accepted Answer

All of the factors mentioned can discourage covered interest arbitrage, even if interest rate parity does not exist. Transaction costs can eat into any potential profits, political risk can make it difficult or risky to carry out a large foreign exchange transaction, and differential tax laws can increase the complexity and potentially decrease the returns of the arbitrage strategy.

Which of the Following Might Discourage Covered Interest Arbitrage Even