(2008) also discover that a) covered interest arbitrage gains are more likely to occur in periods of high volatility or in illiquid markets; and b) the deviations from CIRP conditions (i.e., the arising of pure arbitrage opportunities) in those major global currency and capital markets tend to be short-lived.
Witte (2013), "The Microstructure of Covered Interest Arbitrage in a Market with a Dominant Market Maker," Journal of International Financial Markets, Institutions and Money 24: 25-41.
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.
This study does an empirical test of the interest rate parity between the United States and selected emerging Asian economies of Malaysia, Korea, Singapore, Pakistan, India, Thailand and Philippines, and explores opportunity for covered interest arbitrage. Data were collected on all these countries from 1996 to 2007 on deposit rates and exchange rates, both spot and forward.
"A classroom exercise to simulate triangular and covered interest arbitrage
." Journal of Financial Education 30 (Summer): 73-86.
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.
Recall that in A Tract on Monetary Reform, Keynes had introduced covered interest arbitrage, equating the spread between forward and spot exchange rates to the difference between nominal interest rates in two currencies, if capital is mobile (uncovered interest arbitrage, equating the interest differential to the expected rate of appreciation or depreciation of the exchange rate, had been introduced by Irving Fisher in 1896).
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
and developing countries, therefore it is possible to make arbitrage profit in foreign exchange speculation through covered interest arbitrage
If interest rate parity holds then there is no opportunity for covered interest arbitrage
. This paper shows that interest rate parity holds for most part between U.S.A.