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Nearby Terms

uncashed
uncalled
uncovered interest arbitrage
undated

uncovered interest arbitrage

definition

A type of carry trade transaction where a trader exchanges their low interest rate domestic currency for a higher interest rate foreign currency to place it on deposit in the foreign country. The trader using uncovered interest arbitrage will benefit from the interest rate differential, as well as favorable moves in the forex rate if their domestic currency depreciates relative to the foreign currency. Nevertheless, this is not a true arbitrage since it does not lock in a profit and risk exists if the foreign currency falls in value relative to the domestic currency. also called a carry trade.