_______________ is a process of taking advantage of differentials in interest rates of two currencies while eliminating exchange risk.

Question

Quizplus · Accepted Answer

Covered-Interest Arbitrage is the process where investors capitalize on the interest rate differential between two countries while hedging against exchange rate risk. This involves borrowing in a currency with a lower interest rate, converting the borrowed amount into a currency with a higher interest rate, and investing in interest-bearing instruments in that foreign currency. To eliminate exchange rate risk, the investor simultaneously enters into a forward contract to convert the foreign currency amount back into the original currency at a future date.

_______________ Is a Process of Taking Advantage of Differentials in Interest