Covered interest arbitrage is the process that:
A) Ensures the same domestic return whether investing domestically or in a foreign country.
B) Forces interest rate parity.
C) Increases currency risk.
D) a and b only.
E) All of the above.

Question

Quizplus · Accepted Answer

Covered interest arbitrage is a strategy that investors use to capitalize on the differences in interest rates between two countries while hedging against currency risk. It ensures that the investor will receive the same return whether investing domestically or in a foreign country (A) and, through its mechanisms, helps to enforce the condition known as interest rate parity (B), which is the fundamental principle that prevents arbitrage opportunities due to differences in interest rates across countries.

Covered Interest Arbitrage Is the Process That