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  • October 31, 2022
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Covered Arbitrage 

An arbitrage technique that is based on the creation of a synthetic foreign exchangeforward contract using two zero-coupon debt instruments (e.g., zero-coupon bonds) each denominated in a different currency. This multicurrency arbitrage is usually used to reduce or eliminate foreign exchange risk by setting up a forward cover.

A covered arbitrage is designed to help protect investors by hedging a cash commodity against a future financial obligation.


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