When using ____, funds are typically tied up for a significant period of time. covered interest arbitrage locational arbitrage triangular arbitrage locational arbitrage AND triangular arbitrage
Question
When using ____, funds are typically tied up for a significant period of time. covered interest arbitrage locational arbitrage triangular arbitrage locational arbitrage AND triangular arbitrage
Solution
The correct answer is "covered interest arbitrage".
Covered interest arbitrage is a financial strategy that involves an investor using a forward contract to hedge against exchange rate risk. This strategy is used when there is a discrepancy between the interest rates of two countries. The investor borrows money in the country with the lower interest rate, then invests in the country with the higher interest rate.
However, this strategy typically requires the funds to be tied up for a significant period of time. This is because the investor must wait for the forward contract to expire before they can realize their profits. Therefore, while covered interest arbitrage can be profitable, it also involves a significant time commitment.
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