uncovered interest arbitrage


An investment strategy where a domestic currency with a low interest rate is switched to a foreign currency to be able to earn higher interest. For instance, if the interest rate for the Euro is higher than that of the U.S Dollars, an investor will sell the Dollars and use the proceeds to buy Euros. The Euro is then used to buy securities and when such securities mature, the Euro is converted back to Dollars.
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uncovered call uncovered option