Covered Interest Arbitrage
This is a wildly complicated trading strategy used when investing in currency. It involves looking at the difference between interest rates in conjunction with two currencies, and attempting to profit from a trade. It’s "covered" because the trader uses a forward contract to hedge their risk.
Hedging costs money though, because the trader is benefiting from less risk. So it wouldn’t make sense to use this type of strategy if it costs more to hedge than the difference in interest rates would yield.
Related or Semi-related Video
Finance: What is Dead Cat Bounce?13 Views
Finance allah shmoop What is a dead cat bounce It
sounds like a dance move from the old west right
but it actually refers to a terrible situation when the
market plummets rebounds very slightly and then plummets again The
idea comes from the notion of dropping a cat off
of a high building It hits the cement dead bounces
a bit before then is a big wet thud Yeah
peeta no cats were harmed in the production of this
definition Thie market has fallen from five thousand twelve hundred
now it's at fourteen hundred and now it's back to
twelve hundred Yeah that uplift of two hundred points there
from twelve hundred fourteen hundred before it went back twelve
hundred which is the concrete that's the dead cat bounce
I'm not totally sure who came up with this term 00:00:50.247 --> [endTime] but wei have a pretty good idea
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