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    Question

    Covered Interest Arbitrage

    involves:
    A Borrowing in domestic currency Correct Answer Incorrect Answer
    B Converting to foreign currency Correct Answer Incorrect Answer
    C Investing abroad and covering with forward contract Correct Answer Incorrect Answer
    D All of the above Correct Answer Incorrect Answer

    Solution

    Covered interest arbitrage: Borrow domestic → Convert to foreign → Invest abroad → Sell forward foreign currency → Repay domestic loan → Profit from interest differential after covering exchange risk.

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