If interest rate parity does not hold, and the forward ____ is greater than the interest rate differential, then covered interest arbitrage is feasible for investors residing in the ____ country.

Question

Quizplus · Accepted Answer

If the forward premium is greater than the interest rate differential, investors in the home country can engage in covered interest arbitrage by borrowing in the foreign currency, converting to the home currency, and investing at the home interest rate, locking in a profit.

If Interest Rate Parity Does Not Hold, and the Forward