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Absolute Purchasing Power Parity
The theory that, in the absence of transaction costs and other barriers, identical goods in different countries should have the same price when expressed in a common currency.
Transaction Costs
The expenses incurred when buying or selling goods and services, which may include commissions, fees, and the bid-ask spread.
Covered Interest Arbitrage
An investment strategy that involves exchanging domestic currency for a foreign currency, investing in foreign interest-bearing assets, and using forward contracts to hedge exchange rate risk.
Forward Contract
A special arrangement made between two parties to transact an asset at a pre-agreed price on a set date in the future.
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