Assume that U.S. investors are benefiting from covered interest arbitrage due to high interest rates on euros. Which of the following forces should result from this covered interest arbitrage activity?
A) downward pressure on the euro's spot rate
B) downward pressure on the euro's forward rate
C) downward pressure on the U.S. interest rate
D) upward pressure on the euro's interest rate

Question

Assume that U.S. investors are benefiting from covered interest arbitrage due to high interest rates on euros. Which of the following forces should result from this covered interest arbitrage activity?​
A) ​downward pressure on the euro's spot rate
B) ​downward pressure on the euro's forward rate
C) ​downward pressure on the U.S. interest rate
D) ​upward pressure on the euro's interest rate

Quizplus · Accepted Answer

The Answer of Assume that U.S. investors are benefiting from covered interest arbitrage due to high interest rates on euros. Which of the following forces should result from this covered interest arbitrage activity?​
A) ​downward pressure on the euro's spot rate
B) ​downward pressure on the euro's forward rate
C) ​downward pressure on the U.S. interest rate
D) ​upward pressure on the euro's interest rate

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