Covered interest arbitrage ensures
A)exchange parity.
B)purchasing power parity.
C)interest parity.
D)All of the above.

Question

Quizplus · Accepted Answer

Covered interest arbitrage ensures interest parity, which is the equilibrium condition where the differences in interest rates between two countries are equal to the forward premium or discount on their currencies. It does not necessarily guarantee exchange parity or purchasing power parity, which are separate concepts related to the overall value of the currencies and the ability to buy goods and services with them. Therefore, the correct answer is C.

Covered Interest Arbitrage Ensures