Respuesta :
covered interest arbitrage (CIA) transactions will result in Restoring equilibrium prices quickly.
A covered interest arbitrage strategy is one in which an investor uses a forward contract to hedge against currency risk. Covered interest rate arbitrage is the practice of investing in a higher-yielding currency and hedging the exchange risk with a forward currency contract using favorable interest rate differentials.
Covered interest arbitrage can occur only if the cost of hedging the exchange risk is less than the additional return generated by investing in a higher-yielding currency—hence the term arbitrage. It is similar to uncovered interest arbitrage.
Covered interest arbitrage is a strategy for hedging interest rate risk in currency markets that involves arbitraging interest rate differentials between spot and forward contract markets.
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