6) "With bank FD interest rates now moving lower, arbitrage funds are being favored by investors. Arbitrage funds by nature will not have a fixed return and the returns will fluctuate. Since there is no arbitrage, regardless f the investment choice taken, the Return On Investment (ROI) is equal in all cases. Arbitrage is the practice of buying currency or shares in one market and then selling them on another market to make a profit. Covered Interest Rate Parity Nov 27, 2018 · A covered interest rate parity is understood as a "no-arbitrage" condition. Simply put, this means that investors will be unable to achieve zero-risk profits simply by exchanging currencies and taking advantage of discrepancies in exchange rates. In order to think about your profit opportunities using the Interest Rate Parity (IRP) or the covered interest arbitrage, consider calculations of ρ and the IRP-suggested forward rate. ρ is calculated based on the interest rate differential between countries. Sep 19, 2014 · Covered interest arbitrage is a method of profiting from a favorable set of interest rate conditions in another country. Investors take advantage of the higher interest rate in the second country and hedge against exchange rate risks with forward contracts that guarantee a particular exchange rate at a future date. Empirical studies of covered interest arbitrage suggest that the parity condition is not always satisfied and thus implying unexploited profit opportunities. This paper provides a procedure for estimating transaction costs in the markets for foreign exchange and for securities. 6) "With bank FD interest rates now moving lower, arbitrage funds are being favored by investors. Arbitrage funds by nature will not have a fixed return and the returns will fluctuate.