The act of capitalizing on the discrepancy between the forward rate premium and the interest rate differential is called
A)triangular arbitrage.
B)locational arbitrage.
C)covered interest arbitrage.
D)interest rate parity.

Question

The act of capitalizing on the discrepancy between the forward rate premium and the interest rate differential is called ​
A)triangular arbitrage.
B)locational arbitrage.
C)covered interest arbitrage.
D)interest rate parity.

Quizplus · Accepted Answer

Covered interest arbitrage involves taking advantage of the difference between the forward rate premium and the interest rate differential by investing in different currencies and covering the exchange rate risk with a forward contract.

The Act of Capitalizing on the Discrepancy Between the Forward