Gino Cenedese, Pasquale Della Corte, Tianyu Wang, 19 June 2019

Deviations from covered interest parity represent, in theory, an arbitrage opportunity. This column shows that post-crisis, financial regulation may explain why this mispricing persists and cannot be arbitraged away. It also finds that more constrained dealers demand an extra premium from their clients for synthetic dollar funding relative to direct dollar funding, resulting in deviations in covered interest parity.

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