The arbitrage process that forces interest rate parity is called ________.

Question

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Covered interest arbitrage is the process of exploiting interest rate differentials between two countries by using a forward contract to cover (eliminate) exchange rate risk. This process equalizes expected returns on similar assets denominated in different currencies and forces interest rate parity. Uncovered interest parity refers to the absence of a forward contract to cover exchange rate risk, while covered interest parity involves the use of a forward contract. Covered interest parity is not the same thing as covered interest rate parity. Covered dividend arbitrage is a strategy used in options trading that involves buying and selling stock and options to capture the difference between the dividend payout on the stock and the option pricing.

The Arbitrage Process That Forces Interest Rate Parity Is Called