If covered interest arbitrage opportunities exist,
A) interest rate parity does not hold.
B) interest rate parity holds.
C) arbitragers will be able to make risk-free profits.
D) interest rate parity does not hold, and arbitragers will be able to make risk-free profits.
E) interest rate parity holds, and arbitragers will be able to make risk-free profits.

Question

Quizplus · Accepted Answer

Covered interest arbitrage opportunities arise when interest rate parity does not hold, allowing arbitragers to make risk-free profits by exploiting the difference in interest rates between two countries.

If Covered Interest Arbitrage Opportunities Exist