Presumably, if there are sufficient numbers of arbitrageurs in perfectly competitive cross-country financial markets, the covered interest arbitrage
profits, if any, will be quickly eliminated by adjustment of one or more of these exchange and interest rate variables.
The presented data show how the models fail to account for the excess returns from interest rate differentials (Atkeson & Kehoe, 2007) because based on interest rate parity covered interest arbitrage
is not possible.
Therefore to gain from a covered interest arbitrage
, a British investor must simultaneously buy dollars in the spot market and sell dollars in the forward market.
A classroom exercise to simulate triangular and covered interest arbitrage
Indian Currency and Finance [Keynes, 1913] explored the working of the gold-exchange standard and the need for a reserve bank to manage India's participation in it; The Economic Consequences of the Peace [Keynes, 1919] argued that the transfer problem made the reparations clauses of the Versailles Peace Treaty unworkable; A Tract on Monetary Reform [Keynes, 1923] exposed the social costs of hyperinflation, discussed inflation as a tax on holding money and government bonds, and analyzed covered interest arbitrage
in the forward market for foreign exchange in the resulting world of floating exchange rates [Dimand, 1988]; and The Economic Consequences of Mr.
More advanced subjects, such as covered interest arbitrage
and hedging alternatives, are presented so that more expert users may sharpen their skills.
The theoretical forward rate may be observed in the currency markets where there are no obvious covered interest arbitrage
The most recent of his journal articles is "Gold-Point Arbitrage and Uncovered Interest Arbitrage
under the 1925-31 Dollar-Sterling Gold Standard," Explorations in Economic History (1993).
He also found that policy loan fluctuations were due primarily to interest rates, supporting the interest arbitrage
and alternative sources hypotheses.
7) For example, to avoid reverse interest arbitrage
arising from excess U.
Two theories, namely Interest Arbitrage
and Speculation, explaining the relationship between spot and forward rates are examined.
and other industrialized countries, and therefore there is no opportunity for covered interest arbitrage