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Covered interest arbitrage |
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Covered interest arbitrageA combination of transactions on two countries' securities and exchange markets designed to profit from failure of covered interest parity. A typical set of transactions would include selling bonds in one market, using the proceeds to buy spot foreign currency and foreign bonds, and selling forward the return at a future date. See also one-way arbitrage.Covered interest arbitrageOccurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.Covered interest arbitrage Similar MatchesArbitrageArbitrageA combination of transactions designed to profit from an existing discrepancy among prices, exchange rates, and/or interest rates on different markets without risk of these changing. Simplest is simultaneous purchase and sale of the same thing in different markets, but more complex forms include triangular arbitrage and covered interest arbitrage. Currency arbitrageCurrency arbitrageTaking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market. Multiple ArbitrageMultiple ArbitrageIn the context of hedge funds, a style of management where by the fund employs more than one arbitrage strategy. Portfolio manager opportunistically allocates capital among the various strategies in order to create the best risk/reward profile for the overall fund. Common strategies include merger arbitrage, convertible arbitrage, fixed income arbitrage, long/short equities pairs trading, and volatility arbitrage. In the context of equity and private equity investment, this refers to an investment in a firm where by standard multiples (earnings/price, book/price) indicate the price is far cheaper than industry averages. Index arbitrageIndex arbitrageAn investment/trading strategy that exploits divergences between actual and theoretical futures prices. An example is the simultaneous buying (selling) of stock index futures (i.e., S&P 500) while selling (buying) the underlying stocks of that index, capturing as profit the temporarily inflated basis between these two baskets. Often, the point at which profitability exists is expressed at the block call as the number of points the future must be over or under the underlying basket for an arbitrage opportunity to exist. See: Program trading. Riskless arbitrageRiskless arbitrageThe simultaneous purchase and sale of the same asset to yield a profit. Further SuggestionsArbitrage bondsArbitrage Trading Program (ATP) Triangular arbitrage arbitrage Reversal Arbitrage Risk controlled arbitrage Special arbitrage account conversion arbitrage Convertible Arbitrage One-way arbitrage Arbitrage free option pricing models Discount Arbitrage Arbitrageur Triangular arbitrage Merger Arbitrage arbitrageur International arbitrage Locational arbitrage Structured arbitrage transaction Tax arbitrage |
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