Asked by hemangi mujumdar on Jul 27, 2024
Verified
If covered interest arbitrage opportunities exist,
A) interest rate parity does not hold.
B) interest rate parity holds.
C) arbitragers will be able to make risk-free profits.
D) interest rate parity does not hold, and arbitragers will be able to make risk-free profits.
E) interest rate parity holds, and arbitragers will be able to make risk-free profits.
Arbitragers
Individuals or entities that try to profit from price differences of the same or similar financial instruments on different markets or forms.
Risk-Free Profits
Refers to profits made through investment or transactions that carry no risk of financial loss.
- Master the principles of covered interest arbitrage, appreciate its contribution to the balance of interest rates, and analyze its repercussions on currency futures prices.
Verified Answer
LB
Lillian BauerAug 01, 2024
Final Answer :
D
Explanation :
Covered interest arbitrage opportunities arise when interest rate parity does not hold, allowing arbitragers to make risk-free profits by exploiting the difference in interest rates between two countries.
Learning Objectives
- Master the principles of covered interest arbitrage, appreciate its contribution to the balance of interest rates, and analyze its repercussions on currency futures prices.