International Arbitrage n Covered interest arbitrage activity makes forward premium approximately equal to the differential in interest rates between two countries n If forward premium does not equal the interest rate differential, covered interest arbitrage is possible n If the forward premium or discount equals the interest rate differential, there are no opportunities for arbitrage
{"Image DocumentName": "Background on Foreign Exchange Markets", "Image ImageDescription": "Cross-exchange rates are foreign exchange rates of two currencies relative to a currency. Value of one unit of currency A in units of currency B = value of currency A in   divided by value of currency B in   British Pound =  1.4555; Euro =   Value of Pound in Euros =  1.4555/ .8983 or\u2026 1.62 Pounds per Euro using the forex rates per U.S. dollar.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}