If interest rate parity does not hold, and the forward ____ is greater than the interest rate differential, then covered interest arbitrage is feasible for investors residing in the ____ country.

Question

Quizplus · Accepted Answer

If the forward premium is greater than the interest rate differential, covered interest arbitrage is feasible for investors in the home country because they can earn a higher return by investing in the foreign currency and hedging with a forward contract.

If Interest Rate Parity Does Not Hold, and the Forward