[djohnston]

Arbitrage opportunity?

[konschubert]

The higher interest rate covers the higher inflation. Currencies are very well arbitraged already, I wouldn't expect any inefficiencies to profit from.

[mortehu]

But check this out:

http://faculty.chicagobooth.edu/workshops/finance/pdf/Verdel...

"We find that deviations from the covered interest rate parity condition (CIP) imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs."

[akg_67]

Changes in foreign exchange rates usually arbitrage out most interest rate disparities.

[greglindahl]

It's called the "carry trade".