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HOME | Definition of uncovered interest arbitrage (UNCOVERED INTEREST ARBITRAGE, Uncovered interest arbitrage)
  • A process of borrowing a currency and converting it to a second currency where it is invested. The arbitrageur aims to earn profit from the relative interest rates received and paid. Unlike covered interest arbitrage, the currency in which the arbitrageur invests is not sold forward; instead the arbitrageur waits until the maturity of the investment and then sells the second currency spot for the original currency. Also, unlike covered interest arbitrage, the uncovered version is risky.
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