The world should just use Bitcoins

I wish there was just one global currency so we didn’t have to deal with this dark magic …

can someone explain to me covered interest rate parity and uncovered interest rate parity? In reference to Vol 4 p.104 of Schweser Notes.

are they both saying that there is no arbitrage opportunity with Carry Trade?


Covered interest rate parity means that there is a forward contract on the currencies that will ensure the parity condition (so that there is no arbitrage opportunity); it gives you the formula for what the forward exchange rate _ has to be _.

Uncovered interest rate parity means that there is no forward contract available on the currencies; it gives you a formula for what the expected exchange rate is (i.e., what the rate _ should be _) as if there were a forward contract available.

thanks S2000…

just to play stupid… It is correct for me to say that if both those parity hold true then someone can not use Carry Trades to earn a profit? but in reality you could earn profit with carry trade before the market corrects itself right?

just want to make sure i understand this in my words.

You’re welcome.

Correct . . .

. . . and correct.

Sounds as though you got it.