International Arbitrage

Arbitrage refers to the practice of exploiting price differences in different markets to make a riskless profit. In the context of international finance, there are various types of international arbitrage:

1. Locational Arbitrage: Locational arbitrage involves taking advantage of price discrepancies of a currency between different geographic locations or markets.
2. Triangular Arbitrage: Triangular arbitrage exploits inconsistencies in exchange rates between three different currencies to generate profits.
3. Covered Interest Arbitrage: Covered interest arbitrage involves taking advantage of interest rate differentials between two countries while hedging the exchange rate risk through forward contracts.