The equilibrium state in which covered interest arbitrage is no longer possible is called interest rate parity (IRP).

Question

Quizplus · Accepted Answer

Interest rate parity refers to the condition in which the interest rate differential between two countries is equal to the expected depreciation of the higher-interest-rate country's currency. When IRP holds, covered interest arbitrage is no longer possible because there are no more profitable opportunities for investors to exploit. Therefore, the statement is true.

The Equilibrium State in Which Covered Interest Arbitrage Is No