currency to decrease.
A recent study examined the frequency of attaining simultaneous equilibrium on spot and forward exchange markets.6 The study found that the frequency of attaining simultaneous market equilibrium is low, and that this situation caused one way arbitrage to be feasible. The study also examined the profitability of covered interest arbitrage and one way arbitrage.7 In this latter context, the study found that markets are efficient in that profit opportunities from covered interest arbitrate are rarely available.
Covered interest arbitrage is often pursued through a interest hedging strategy. The concept of arbitrage, especially in application, is closely related to the concept of hedging. Arbitrage, as has been noted, consists of buying and selling the same item at the same time, but in two or more different markets. Hedging is an action or a series of actions taken by either a buyer or a seller to protect assets against a change
...