With respect to interest rate parity, when parity conditons are not in effect in currency and money markets, traders could make extraordinary profits from a practice known as .

Full question:

With respect to interest rate parity,  When parity conditions are not in effect in currency and money markets, traders could make extraordinary profits from a practice known as .

A) covered interest rate parity

B) covered interest rate arbitrage

C) triangular arbitrage

D) forward market arbitrage

When parity conditions are not in effect in currency and money markets, traders could make extraordinary profits from a practice known as covered interest rate arbitrage

Explanation:

Covered interest arbitrage is an endowment strategy intended to profit from the variations in interest rates within two countries when purchasing and trading foreign currencies. It includes using a forward contract to restrict disclosure to exchange rate danger.

Returns on covered interest rate arbitrage manage to be short, particularly in markets that are competing or with comparatively low levels of information asymmetry. Although covered interest arbitrage is a low-risk procedure you may discover it tough to obtain a large profit.

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