How Does Covered Interest Arbitrage Create Efficiency in Foreign Exchange

question 25

Essay

How does covered interest arbitrage create efficiency in foreign exchange markets?

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Definitions:

Reaction Formation

a defensive psychological mechanism in which a person unconsciously replaces their true, anxiety-causing feelings with their opposite.

Displacement

A defense mechanism where an individual's emotions or impulses are transferred from the original source of stress to a more acceptable or less threatening target.

Fixation

In psychoanalytic theory, an obsessive interest or feeling stuck at a particular stage of psychological development.

Compensation

A concept in psychology that refers to efforts made to offset or overcome weaknesses, disadvantages, or handicaps, aiming to maintain self-esteem or achieve success.