covered interest arbitrage

Covered interest arbitrage

Occurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.

Covered Interest Arbitrage

A strategy in which one enters a long position in an investment in a foreign currency and simultaneously enters a short position in a forward contract on that same currency. The amount one receives in the sale of the forward contract should equal what one spends on the long investment in the base currency. One enters the short position in order to hedge the exchange risk.

covered interest arbitrage

the borrowing and investing of foreign currencies to take advantage of differences in INTEREST RATES between countries. For example, a company could borrow an amount of one currency (say, the UK pound (£)), convert this into another currency (say, the US dollar ($)) and invest the proceeds in the USA. Concurrently, the company would sell $s for £s in the FORWARD MARKET for delivery at a future specified date. The company would earn a profit on such a transaction if the rate of return on its investment in the USA was greater than the combined expenses of interest payments on the amount of £s borrowed and the costs of concluding the forward exchange contract. Covered interest ARBITRAGE takes advantage of (and in the process eliminates) any temporary discrepancies between relative interest rates in two countries and the forward exchange rate of the two countries' currencies.

covered interest arbitrage

the borrowing and investing of foreign currencies to take advantage of differences in INTEREST RATES between countries. For example, a company could borrow an amount of one currency (say, the UK pound (£)), convert this into another currency (say, the US dollar ($)) and invest the proceeds in the USA. Concurrently, the company would sell $s for £s in the FUTURES MARKET for delivery at a future specified date. The company would earn a profit on such a transaction if the rate of return on its investment in the USA were greater than the combined expenses of interest payments on the amount of £s borrowed and the costs of concluding the forward exchange contract. Covered interest ARBITRAGE takes advantage of (and in the process tends to eliminate) any temporary discrepancies between relative interest rates in two countries and the forward exchange rate of the two countries’ currencies. See INTERNATIONAL FISHER EFFECT.

单词	covered interest arbitrage
释义	covered interest arbitrage Covered interest arbitrage Occurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars. Covered Interest Arbitrage A strategy in which one enters a long position in an investment in a foreign currency and simultaneously enters a short position in a forward contract on that same currency. The amount one receives in the sale of the forward contract should equal what one spends on the long investment in the base currency. One enters the short position in order to hedge the exchange risk. covered interest arbitrage the borrowing and investing of foreign currencies to take advantage of differences in INTEREST RATES between countries. For example, a company could borrow an amount of one currency (say, the UK pound (£)), convert this into another currency (say, the US dollar ($)) and invest the proceeds in the USA. Concurrently, the company would sell $s for £s in the FORWARD MARKET for delivery at a future specified date. The company would earn a profit on such a transaction if the rate of return on its investment in the USA was greater than the combined expenses of interest payments on the amount of £s borrowed and the costs of concluding the forward exchange contract. Covered interest ARBITRAGE takes advantage of (and in the process eliminates) any temporary discrepancies between relative interest rates in two countries and the forward exchange rate of the two countries' currencies. covered interest arbitrage the borrowing and investing of foreign currencies to take advantage of differences in INTEREST RATES between countries. For example, a company could borrow an amount of one currency (say, the UK pound (£)), convert this into another currency (say, the US dollar ($)) and invest the proceeds in the USA. Concurrently, the company would sell $s for £s in the FUTURES MARKET for delivery at a future specified date. The company would earn a profit on such a transaction if the rate of return on its investment in the USA were greater than the combined expenses of interest payments on the amount of £s borrowed and the costs of concluding the forward exchange contract. Covered interest ARBITRAGE takes advantage of (and in the process tends to eliminate) any temporary discrepancies between relative interest rates in two countries and the forward exchange rate of the two countries’ currencies. See INTERNATIONAL FISHER EFFECT.
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