Covered Interest Arbitrage (CIA)activities will result in

Question

Quizplus · Accepted Answer

Covered Interest Arbitrage (CIA) activities involve exploiting the interest rate differentials between two currencies by borrowing in one currency and investing in another with a higher interest rate, while simultaneously hedging against exchange rate risk. This tends to restore equilibrium quite quickly as arbitrageurs engage in buying and selling activities to make profits by taking advantage of the interest rate differentials until they converge. This process helps to keep the market stable and efficient. Therefore, the correct answer is B, restoring equilibrium quite quickly.

Covered Interest Arbitrage (CIA)activities Will Result in