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What is International Arbitrage and Interest Rates about?

The document discusses three forms of international arbitrage: locational arbitrage, triangular arbitrage, and covered interest arbitrage. It then explains interest rate parity, in which the forward exchange rate differs from the spot rate by an amount that offsets interest rate differentials between two currencies. According to interest rate parity, covered interest arbitrage should not be feasible if the forward premium equals the interest rate differential.

Author

Baek Aerin

Language

EN