_____ 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

Covered interest arbitrage involves buying a currency spot and selling it forward to take advantage of the difference in interest rates between two countries and the forward premium on the currency. This strategy is covered because the trader has hedged the foreign exchange risk by simultaneously taking opposite positions in the spot and forward markets, thus eliminating the potential for market fluctuations to affect profits.

_____ Is Buying a Country's Currency Spot and Selling That