Covered Interest Parity
http://johnhcochrane.blogspot.com/2017/03/covered-interest-parity.html [johnhcochrane.blogspot.com]
2017-03-21 17:12
So far, so good, but reflect really: this makes no sense at all. Banks are leaving pure arbitrage opportunities on the table, for years at a time. It’s an infinite Sharpe ratio!
(This is called “window dressing” in finance, making your balance sheet look good for a one-day snapshot at the end of the quarter.) If this gives you great confidence in the technocratic competence of bank regulators, you’re reading the wrong blog.
source: ML