Suppose a firm uses its company cost of capital to evaluate all of its projects. Will it underestimate or overestimate the npv of new projects that are riskier than the firm’s average projects?.

Answers

Answer 1

The chances of losses are very high in high-risk projects, so the firm will underestimate the value of high risk projects.

What do you mean by cost of capital?

Cost of capital refers to the estimation of return that a business expects from a capital project. It is used to attract investors to invest in the capital of the firm and improve market value.

Talking about the cost of capital, the assumed return and Higher WACC shows that there is a higher  risk associated with the operations. In case of lower WAAC it leads to lower risk.  In case of higher risk projects the organization will use a higher cost of capital than the standard one.

The chances of losses are very high in high-risk projects, so the firm will underestimate the value of high risk projects.

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gross private domestic investment exceeds depreciation in an economy that experiences expanding production capacity.

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In an economy with rising production capacity, gross private domestic investment outpaces depreciation. The sum of all business firms' combined sales is the most straightforward method for calculating GDP. Typically, personal income is higher than disposable income.

This incredibly precise number, one of the four components of GDP, may show whether an economy is growing or decreasing as well as what it can look like at its potential.

It represents a gross investment sum. This implies that it covers the production of all commodities, even those that replace depreciated goods. Depreciation, which is technically referred to as capital consumption adjustment, is subtracted from the GPDI (gross private domestic investment) to determine net investment.

Only private investment is included. Government consumption expenditures and gross investment, a distinct measure that also makes up GDP, includes public investment.

Only domestic expenses are included. Investment from abroad is not included in GPDI(gross private domestic investment).

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the university can vary its labor force rather quickly. faculty can be quickly hired and similarly it is possible to downsize the faculty. in fact, the university can probably adjust its faculty at any point in time. however, adjusting the classroom space is a little bit longer. the last time a new classroom building was added to the campus it took about four years to go from making the decision to adjust the capital stock to introducing the new building into service. from this we can assume that the long run framework for the university is about four years. feel free to assume that the university employs only these two inputs. question 1 options:

Answers

True ; in the short run there is at least one factor of production that is fixed in nature. It is capital. In the given scenario, adding a new building is capital that is taking 4 years of time.

What criteria define unemployment?

To be classified as unemployed in the CPS people must satisfy two primary criteria:

They must have no job and they must be actively seeking employment.  Those who do not have jobs and are not actively searching are considered to be out of the labor force.

To be precise, the BLS defines unemployed persons as those who “had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the four-week period ending with the reference week.”   There is one exception to this rule: “persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

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Explain, in your own words, why marginal revenue for a monopolist declines as output increases.

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In a monopoly, marginal revenue is always equivalent to or lower than average revenue so because price fluctuates as the amount sold fluctuates.

The increase in revenue coming from selling one further output unit is known as marginal revenue. Although marginal revenue may stay unchanged at a particular level of output, this will eventually begin to decrease as the production level rises due to the law of diminishing marginal returns.

The entire revenue generated by a business divided by the total number of units is its average revenue. The average revenue and cost of a firm inside a competitive market equals its marginal revenue. This is the case so because price does not change regardless of changes in output levels. In a monopoly, marginal revenue will constantly be equal to or lower than average revenue because of price fluctuates as the amount sold fluctuates.

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other companies do not see the marketing environment as uncontrollable. they take a ________ stance toward the marketing environment and develop strategies to ________ the environment.

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Other companies do not see the marketing environment as uncontrollable. they take a proactive stance toward the marketing environment and develop strategies to change the environment.

Marketing is the set of activities, institutions, and processes for creating, communicating, delivering, and exchanging offers of value to customers, clients, partners, and society at large.

The 4 Ps are the 'marketing mix' which consists of his four main components: product, price, location and promotion used to market products and services. Businesses typically consider the 4 P's when creating marketing plans and strategies to effectively market to their target audience. In short, actions taken to draw attention to a company's offerings. This could be the physical goods you sell or the services you provide. Common examples of workplace marketing include TV commercials, roadside billboards, and magazine ads.

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uppose that third national bank has reserves of $20,000 and checkable deposits of $100,000. the reserve ratio is 20 percent. the bank sells $10,000 in securities to the federal reserve bank in its district, receiving a $10,000 increase in reserves in return. what amount of excess reserves does the bank now have?

Answers

The correct answer is $15,000.

What is a banking system?A bank is a type of financial institution authorized to grant loans and accept deposits for checking and savings accounts. Individual retirement accounts (IRAs), certificates of deposit (CDs), currency exchange, and safe deposit boxes are other services that banks offer.Retail banks, commercial or corporate banks, and investment banks are just a few of the several sorts of banks.Since the fourteenth century, at least, banks have existed. They give customers and business owners a secure place to store their cash as well as a way to get loans for both personal and professional endeavors.Banks provide loans and charge interest on them using the money that is deposited.Since the Medici family began dabbling in banking during the Renaissance, the basic business model hasn't changed much, but the variety of products that banks offer has expanded.

According to our answer-

According to the scenario, the computation of the given data are as follows:

Checkable deposits = $100,000

Required reserves = 10% of deposits

Reserves = $100,000 ×10% = $10,000

After selling securities, the reserves increase by $15,000.

So, total reserves =  $10,000 + $15,000 = $25,000

Now, Excess Reserves = Actual Reserves - 10% of Deposits

= $25,000 - $10,000

= $15,000

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A company regularly honors its employee-of-the-month with a congratulatory post on its social media pages. Which standards should the company establish and enforce to best protect the privacy rights of these employees?

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Rules of conduct for how social media followers and visitors respond to the posts standards should the company establish and enforce to best protect the privacy rights of these employees.

Establish: to introduce, induce to expand, or cause to become stable or firm. to promote the widespread knowledge and acceptance of (someone or something). to support a claim. Her stardom was cemented by the movie. She has a reputation for being a diligent worker. The word is now firmly entrenched in the English language.

Authorize, base, build, create, enact, form, found, inaugurate, install, institute, provide, put, settle, start, confirm, determine, formulate, make, prove, and ratify are all synonyms for "establish."

to begin experiencing joy, self-assurance, and success in a new position or location. She was only beginning to settle down here. Words that are related and synonyms. being or acquiring happiness or happiness. Enjoy it. to verify one's status, someone else's status, or something else's reputation as being a particular thing.

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the largest exporters of coffee to the united states are 1. singapore and myanmar. 2. mexico, indonesia, and guatemala. 3. brazil, colombia, and vietnam. 4. panama, honduras, and chile.

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The largest exporters of coffee to the United States are Mexico.

Mexico coffee Mexico is the largest coffee exporter to the United States, with their Arabica beans growing within the southern regions of the united states, close to the border of Guatemala and along the coastline.

Extra than 70 nations produce coffee, however, the majority of worldwide output comes from simply the pinnacle 5 producers: Brazil, Vietnam, Colombia, Indonesia, and Ethiopia.

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winnebagel corporation currently sells 20,000 motor homes per year at $103,000 each and 14,000 luxury motor coaches per year at $155,000 each. the company wants to introduce a new portable camper to fill out its product line; it hopes to sell 25,000 of these campers per year at $19,000 each. an independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 2,700 units per year and reduce the sales of its motor coaches by 1,300 units per year. what is the amount to use as the annual sales figure when evaluating this project? note: do not round intermediate calculations.

Answers

The amount to use as the annual sales figure when evaluating this project is $551,600,000.

The term "annual sales" refers to the entire amount of money that an organization makes over the course of a year. You might use either a calendar year or a fiscal year to measure that year, depending on how you manage your accounting. Because it excludes expenses, revenue is different from profit.

The calculation to determine the amount to use as the annual sales figure when evaluating this project:

Campers sales revenue $475,000,000

(25,000*$19,000)

Add: Increase in motor homes sales $278,100,000

(2,700 units * $103,000 each)

Less: Decrease in luxury motor coaches ($201,500,000)

(1,300 units per year * $155,000 each)

Annual sales figure $551,600,000

($475,000,000+$278,100,000-$201,500,000)

Therefore, the amount to use as the annual sales figure when evaluating this project is $551,600,000.

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which of the following options strategies is consistent with its implications about the future behavior of the underlying asset price? group of answer choices selling calls and selling puts buying calls and buying puts buying calls and selling puts none of the options

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Options strategies which are consistent with their belief about the future  behavior of the underlying asset price are :
Selling calls and buying puts
Buying calls and selling puts

What is underlying asset?

It is an investment term that refers to the real financial asset or security that a financial derivative is based on. Underlying assets include stocks, bonds, commodities, interest rates, market indexes, and currencies.

Why selling calls and buying puts is an implication about the future behavior of the underlying asset price?
It is because these 2 options will become a reflective of bearish position making and individual expect share price will go down.

Why buying calls and selling puts is an implication about the future behavior of the underlying asset price?
It is because these 2 options will be resulting into expectation of an investor about upward movement of stock prices.

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The price of bread has increased 5% over the past three months

Expansionary
Peak
Contractionary
Trough

Answers

Answer:

C. Contractionary

Explanation:

C is the correct answer

tim is in need of surgery. before being hospitilized, he is referred to an outpatiend clinic for diagnostic tests. what is this an example of

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Tim is in need of surgery before being hospitalized, he is referred to an outpatient clinic for diagnostic tests. This is an example of Pre-admission testing.

Reviewing and evaluating statistics approximately an applicant and applying what is understood of the individual against the insurer's standards and tips for insurability and top-class quotes.

Charges for substandard rules would be significantly higher than those for standard insurance.

Substandard risks usually pay a higher premium charge to catch up on the predicted shortened durability of the insured.

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unit-based overhead rates fail when products consume overhead activities in systematically different proportions due to such factors as significant differences in product size and product complexity.

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Product diversity means that different products consume overhead activities in systematically different proportions due to possible variations in product size, complexity, setup time, or the size of batches.

More options and variety of merchandise and services are facilitated by product diversity. If done properly, diversity greatly improves brand image and business profitability. Diversity can be a form of security. A company can defend itself from other businesses by expanding its services or products. Businesses utilize diversification as a risk-reduction technique to enter new markets and sectors and boost profitability. This may be done by expanding profitability, diversifying to emerging businesses, offering fresh products and services, and attracting new clients.

The complete question is here:

Which of the following statements is true of product diversity?

a. Costs related to setups, material handling, and inspection are all possible examples of costs of product diversity.

b. Product diversity means that different products consume overhead activities in systematically different proportions due to possible variations in product size, complexity, setup time, or the size of batches.

c. Using only unit-based activity drivers to assign nonunit-related overhead costs can cause product diversity.

d. Product diversity states that a product must have various versions with small differences.

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which one of the following is most likely for a ccc-rated bond, compared to a bbb-rated bond?
A) The CCC bond will have a shorter term.
B) The CCC bond will have a variable-coupon rate.
C) The CCC bond will offer a higher promised yield to maturity.
D) The CCC bond will have a higher price for the same term.

Answers

The following is most likely for a ccc-rated bond, compared to a bbb-rated bond is C) The CCC bond will offer a higher promised yield to maturity.

A debt with a "CCC" rating is now at risk of nonpayment and depends on favourable business, financial, and economic conditions for the debtor to fulfill its financial obligation.

An obligation with a "C" rating for subordinated debt or preferred stock is CURRENTLY HIGHLY VULNERABLE to nonpayment. If a bankruptcy petition has been filed or any comparable action has been taken, but payments on this obligation are still being made, the rating of "C" may be applied. A "C" will also be given to a preferred stock issue that is currently paying but is behind on dividend or sinking fund payments.

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florence liked her job profile and salary. however, when she returned from a four-month maternity leave she found that her profile had been altered and she was not eligible for a promotion that year. functionalists would view this as a detrition of florence's .

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Functionalists would view this as a detrition of Florence's ​human capital.

In the field of business, human capital can be described as the value that a particular employee is given in a business based on his attributes such as knowledge, hard work etc.

In the scenario above, Florence had a highly positive capital before her four-month maternity leave. However, as a result of such a long leave, the human capital of Florence deteriorated because she no longer was an active part of the company for four months.

Detrition of the human capital can affect the job status of a person badly, can terminate his chances of promotion, or be fired from the job altogether.

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harriet recently purchased 100 shares of abc preferred stock, paying a 4% dividend. which of the following statements is correct? a) young, high-income investors looking for returns in the form of capital appreciation are the primary purchasers of preferred stock. b) harriet must receive her $40-per-share dividend before the common stockholders receive their dividends. c) harriet will stop receiving dividends after 10 years. d) if abc preferred stock is cumulative, harriet must receive any unpaid abc preferred stock dividends from prior periods before abc can pay any dividends to their common stockholders.

Answers

Harriet recently purchased the 100 shares of ABC preferred stock, paying 4% dividend is Harriet must receive her $40-per-share dividend before common stockholders receive dividends.  

What is a dividend?

A corporation may pay its shareholders a dividend when it distributes its profits to them. When a business makes money or has a surplus, it can distribute a portion of that money to its shareholders in the form of dividends. Any unused funds are withdrawn and put back into the company. A corporation is typically not allowed to pay a dividend out of its capital; instead, it must use its profit from the current year as well as any retained earnings from prior years. Distribution to shareholders can take the form of cash (often a deposit into a bank account) or, if the company has a dividend reinvestment plan, the amount can be paid by the issuance of more shares or by share repurchase. A distribution of assets may occur in several circumstances.

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what is a scope sheet? group of answer choices identifies the items of work to be performed under a specific trade a cut sheet from the specifications spreadsheet showing all current projects list of just the windows and doors

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A scope sheet lists every task that needs to be done for a particular trade.

The project criteria are often covered in the scope of work, along with specifics on how the project's goals will be met. This document frequently contains details on the project's deliverables, timeline, milestones, reports, and an outline of the job you'll be doing.

The scope of work (SOW) part of an agreement describes the work that will be done. The SOW should include a list of any deliverables, deliverable milestones, reports, and final goods that the performing party is expected to create. The SOW should include a timeline for each deliverable.

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Howard Garner proposed that an individual can possess eight different intelligences. Which of the following is NOT one of the eight intelligences? Spatial Logical Structural Intrapersonal

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Interpersonal intelligence is not one of the eight intelligences proposed by Howard Garner. Interpersonal intelligence is the ability to understand and relate to other people.

Which of the following is NOT one of the eight intelligences?

Interpersonal

Interpersonal intelligence is not one of the eight intelligences proposed by Howard Garner, but it is still an important aspect of intelligence. Interpersonal intelligence is the ability to understand and relate to other people. This type of intelligence is important in many different fields, such as:

TeachingHealthcareBusiness

Interpersonal intelligence is not simply the ability to socialize or communicate with others. It also involves the ability to understand their feelings, motivations, and perspectives. This type of intelligence can be useful in resolving conflicts and building relationships.

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a bank failure occurs whenever a. a bank cannot satisfy its obligations to pay its depositors and other creditors. b. a bank suffers a large deposit outflow. c. a bank has to call in a large volume of loans. d. a bank refuses to make new loans.

Answers

A bank failure occurs when a bank cannot meet its obligations to pay its creditors because it has become illiquid or insolvent.

Creditors  :an individual who is owed money. especially: a party that is owed money or goods; see debtor, obligor. — general creditor: a debtor who lacks a lien or other form of security interest. A loan taken out to purchase a home is an example of a debtor/creditor relationship. Consequently, as the homeowner, you are a debtor, and the bank holding your mortgage is a creditor. In general, a person or organization is a creditor if they have made a loan.

A person or business that extends credit to another person is known as a creditor. Examples of such businesses include banks and credit card companies. An individual who uses credit is referred to as a debtor. Creditors have the option to report account activity for a debtor.

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to begin, you must decide who your target market is going to be. before you select a target market, you review the research on turmeric's functional properties. the curcumin in turmeric has been suggested by researchers to have the following functional properties: improving depression, lowering blood sugar, pain killing, and anti-inflammatory. given these functional properties, in fine fettle's turmeric product development team has identified three potential target markets: adult athletes, diabetics, and patients improving depression. (see the table below.) target market market size benefits sought % seeking alternative/natural therapy athletes 25 million anti-inflammatory 70% people with diabetes 29 million lowering blood sugar 25% people with depression 16 million improving depression 40% a key factor in evaluating the target market's attractiveness is the market's desire for alternative/natural solutions because the turmeric meal replacement bar could be used as an alternative medical treatment. which target market should you choose?

Answers

The target market we should use for turmeric meal replacement as an alternative medical treatment is Athletes

Target market :

A target market, also called a serviceable available market, is a group of customers within a company's serviceable available market to which the company directs its marketing efforts and resources. A target market is a subset of the overall market for a product or service. A target market is a group of potential customers that you identify for selling your product or service. Each group can be divided into smaller segments. Segments are typically grouped by age, location, income, and lifestyle.

How do you identify your target market?

The first step in identifying your target market is understanding what your product/service offers a group of people or companies.To do this, identify the features and benefits of your product or service. Features are properties of products/services that come automatically.

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eddie's electronics sells laptop computers for $ 550 each. at this price, the store sells 325 laptops. eddie's electronics incurs a cost of $ 478 for each laptop it sells. assume that this is the store's only cost. what are eddie's electronics' revenue and profit? round your answers to the nearest dollar.

Answers

Eddie's electronics have a profit and revenue of $1,78,750 and $23,400, respectively.

What do we mean by revenue?Revenue is the entire amount of money received from the sale of goods or services related to a company's main operations. Revenue, also known as gross sales, is sometimes referred to as the "top line" since it appears at the top of the income statement. Income or net income refers to a company's overall profits or earnings.

So, the revenue will be:

550 × 325

$1,78,750

Now, the profit will be:

(550 - 478) × 325

72 × 325

$23,400

Therefore, Eddie's electronics have a profit and revenue of $1,78,750 and $23,400, respectively.

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workers at windlock works inc. were instructed by their supervisor to bring quality defects down to 1 per 1 million pieces, a 350 percent improvement, in the next three months. the workers are most likely to be challenged by goal .

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Workers at windsock works inc. were instructed by their supervisor to bring quality defects down to 1 per 1 million pieces in the next three months. the workers are most likely to be challenged by goal difficulty.

The national governing body for nurses and nurse education in India is called the (inc)Indian Nursing Council. The Central Government established it in accordance with section 3 of the(inc) Indian Nursing Council Act, 1947, which places it under the Ministry of Health & Family Welfare of the Indian Government. In philosophy, quality is a property or an attribute that characterizes an object. The concept of qualities, particularly how to differentiate between different types of quality, is still debatable in modern philosophy. How good or bad something is is frequently referred to as its quality: Best-in-class fabric made up the garment. the degree of something's excellence, frequently a high degree of it

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1. (true or false) because union may picket to coerce unionization, it is "not" an unfair labor practice for the employer to punish employees who engage in the picketing.

2. (true or false) when workers must be laid off for economic reasons, the company can consider union participation as a criterion for deciding whom to fire.

3. (true or false) for the purpose of increasing union support, it is "not" an unfair labor practice for a union to demand that an employer hire excess workers.

Answers

A union commits a ULP when it violates rights that the Statute protects.

What qualifies as an unfair labor practice?

An corporation commits an unfair labor practice if it interferes with your proper to join, organize, or help a union, your proper to be concerned in collective bargaining, or your right to be involved in blanketed concerted things to do with different employees

Who can commit an unfair labor practice?

Because each employee is entitled to be part of a change union and participate in its lawful activities, the Labour Relations Code prohibits any conduct that might intervene with this right. Anyone who engages in such prohibited habits is stated to have committed an unfair labour practice.

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Sport management and marketing agencies perform functions for industry stakeholder groups defined as?.

Answers

true. Sport management and marketing firms serve the following stakeholder groups in the industry:properties, corporate brands, talent, and media companies People who want to work in marketing agencies and sport management should get a degree in psychology.

What tasks do marketing and sports management agencies carry out?

Core tasks like strategic planning, sponsorship, solicitation, event management, contract negotiation, market activation, and research and evaluation are handled daily by full service agencies for multiple clients.

In a sports organization, what is management's most crucial role?

A good leader should be able to get athletes, businesses, and clients to work together as a team.Sports managers need to be organizers, leaders, and motivators.They should be able to motivate others to work together to achieve common objectives and achieve success as a team.

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if the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

Answers

If the seller is responsible for freight costs, the delivery terms are FOB destination.

A seller is someone who gives a good, service, or asset in exchange for money. An individual, corporation, government, or any other organization can be a vendor. A seller in financial markets is a party who offers an asset they own or hold for purchase by another party. A seller is also known as a writer in the options market. The writer is the contract's counterparty, and he or she receives a premium for selling the option. Sellers and purchasers are contrasted, and the two are essential components of any transaction or trade. A seller is any person or company who sells a product, service, or financial asset.

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bai xue is an advertiser at a basketball manufacturer. she wants to reach an audience that searched for terms relevant to her brand and products. which amazon audience could help her reach these shoppers?

Answers

In all businesses, advertising is essentially an art. For example, certain markets make basketball, and they may spend a lot of money doing so.

Putting Your Company's Logo on Full-Size Basketballs' Sides as well as You may customize tiny basketballs with your company name, your business logo, and other details by choosing from rubber, vinyl, or even premium leather options.

Currently, there are more than 25 million Americans who regularly play basketball.Many of them are young people who participate in one of the tens of thousands of basketball leagues that are spread out over the nation.

You should think about sponsoring a young team if you want to direct your basketball advertisements at the parents of these kids and, in the process, show your support for your neighborhood and the kids.

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Each of the following events result in a tax payment. Which is an example of an indirect tax?

Sam buys a necklace and earring set at a local jewelry store.
Alex inherits a home and property upon her grandparent’s death.
The Smith's hardware store earned its biggest profit this year to date.
The Joneses save each year toward the property taxes owed on their farm.

Answers

If the given events result in a tax payment. An example of an indirect tax is  A. Sam buys a necklace and earring set at a local jewelry store.

What is indirect tax?

Indirect tax can be defined as the type of tax that are imposed on the goods or products a person purchased from a store.

This type of tax are not imposed on a person earnings or income  but a person is been taxed when ever they purchased a product from a supermarket or store.

Example of indirect tax is when  you purchased groceries from a supermarket in which your   payment receipt   shows a sales tax . This sales tax means that you have be taxed based on the amount of goods you bought or purchased.

Therefore we can conclude that the correct option is A  as it best illustrate what an indirect tax is

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Answer: A) Sam buys a necklace and earring set at a local jewelry store.

Explanation:

Got it right!

the accounting standard regarding revenue requires an entity to follow a five-step approach. the first step is to

Answers

A generally accepted accounting principle called revenue recognition specifies how and when to account for revenue as well as the precise circumstances under which it must be recognized. The revenue recognition model is arranged as follows:

Determine the terms of the customer agreement.Identify the contract's performance requirements.Establish the transactional cost.Allocate the transaction price to the contract's performance commitments.As the entity completes its performance commitments, income should be recognized.

What is Accounting?

Accounting is essential to running a business because it makes it easier to keep track of income and expenses, ensures legal compliance, and gives investors, management, and the government access to quantitative financial data that can be used to make decisions.

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a(n) occurs when an economy experiences a(n) in real gdp for at least two consecutive quarters or six months.

Answers

A significant, pervasive, and protracted decline in economic activity is referred to as a recession. According to a common rule of thumb, a recession is defined as two consecutive quarters of declining gross domestic product (GDP).

According to the NBER, a recession is a time between a business cycle peak and trough when there is a considerable drop in economic activity across the board and it can last anywhere from a few months to more than a year.

Recessions are described as "a considerable fall in economic activity spread across the market, lasting more than a few months, generally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales" in the United States. A similar definition has been adopted by the European Union.

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If a corporation issues shares of par value common stock for ​, the journal entry would include a credit to.

Answers

The journal entry would include a credit to option C. Common Stock for $4,860 if a company issued shares of par value common stock.

Par value of common stock = number of shares x par value

                                              = 2700 x 1.80

                                              = 4860

A security that symbolizes ownership in a firm is called common stock. Common stock owners choose the board of directors and cast ballots for corporate rules. Long-term rates of return are often higher with this type of stock ownership.

Companies issue common stock to attract capital from investors who frequently make investments. Companies use this money to further develop and expand their enterprises.

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covered interest arbitrage (cia) transactions will result in group of answer choices unstable international financial markets. restoring equilibrium prices quickly. higher interest rates across all international financial markets. no effect on the market.

Answers

covered interest arbitrage (CIA) transactions will result in Restoring equilibrium prices quickly.

A covered interest arbitrage strategy is one in which an investor uses a forward contract to hedge against currency risk. Covered interest rate arbitrage is the practice of investing in a higher-yielding currency and hedging the exchange risk with a forward currency contract using favorable interest rate differentials.

Covered interest arbitrage can occur only if the cost of hedging the exchange risk is less than the additional return generated by investing in a higher-yielding currency—hence the term arbitrage. It is similar to uncovered interest arbitrage.

Covered interest arbitrage is a strategy for hedging interest rate risk in currency markets that involves arbitraging interest rate differentials between spot and forward contract markets.

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