Which of the following might discourage covered interest arbitrage even if interest rate parity does not exist? Question 4 options:

a. political risk.
b. ransaction costs.
c. differential tax laws.
d. all of these.

D) all of these

Explanation:

interest rate arbitrage is a method of making a profit by buying currency in one place and selling it in another place, making use of the difference in interest rates in the two places.

There are different factors that can discourage covered interest arbitrage they are:

• transaction cost

• political risk

• differential tax laws

• inflation rate

• interest rate

• recession etc.

b is the correct answer

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