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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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