covered interest arbitrage

Dictionary of Banking Terms for: covered interest arbitrage
covered interest arbitrage

currency arbitrage carried out by purchasing financial instruments in different currencies and using a forward exchange contract to lock in a yield. An investor buying a two-year bond dominated in German deutschemarks, yielding 5%, might exchange D-marks for dollars in the forward market to buy a U.S. dollar denominated security of comparable maturity yielding 9%.

Dictionary of Finance and Investment Terms for: covered interest arbitrage
covered interest arbitrage

arbitrage that exploits and thereby eliminates differences between spot exchange rates, forward exchange rates, and interest rates on deposits, thus creating interest rate parity.

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