covered interest arbitrage Definition | Business Dictionaries from AllBusiness.com
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Business Definition 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.

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%.

Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.

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