Covered Interest Arbitrage (CIA) activities will result in

Question

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Covered Interest Arbitrage involves taking advantage of interest rate differentials in two countries by borrowing at a lower interest rate in one country and investing in a higher interest rate in another country, while simultaneously covering the exchange rate risk through currency hedging. This activity helps restore equilibrium prices quickly by buying or selling assets in response to market inefficiencies, thereby reducing market volatility. It does not lead to disintermediation or an unstable international financial market.

Covered Interest Arbitrage (CIA) Activities Will Result in