Talk:Uncovered interest arbitrage

Not an actual arbitrage

This is not an arbitrage, because the final transaction is done at the unknown future exchange rate, which could be unfavorable for producing a profit. There is no rationalization for calling it an arbitrage. — Preceding unsigned comment added by 24.125.35.175 (talk) 04:48, 30 July 2012 (UTC)

The terminology for this kind of trade is something you would have to take up with financial economists rather than Wikipedia. There are numerous journal articles, monographs, and textbooks cited which readily employ the name "uncovered interest arbitrage." If you look again at this article, the third sentence in the lead paragraph says The strategy is not completely riskless as an investor exposed to exchange rate fluctuations is speculating that exchange rates will remain favorable enough for arbitrage to be possible. So, it's really only arbitrage when the rates are favorable, as you implied, but the article already covers this caveat. Having read a lot of literature on this topic, I've always gathered that uncovered interest arbitrage is really just a useful construct to help explain what could theoretically occur when deviations from uncovered interest rate parity occur. Since there are deviations from UIRP in reality, UIA is possible, but usually not plausible (due to a host of other factors, such as trading costs, execution latency, or unfavorable exchange rates given the uncovered risk). John Shandy` • talk 05:09, 30 July 2012 (UTC)