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Covered interest arbitrage refers to the international flow of short-term liquid capital to earn higher returns abroad. ()

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Interest arbitrage refers to the spot purchase of the foreign currency to make the investment and the offsetting simultaneous forward sale() of the foreign currency to cover the foreign exchange risk. ()

The foreign exchange market is said to be efficient if forward rates accurately predict future spot rates; that is, if forward rates reflect all available information and quickly adjust to any new information so that investors cannot earn consistent and unusual profits by utilizing any available information. ().

We have an unstable foreign exchange market when a disturbance from equilibrium pushes the exchange rate further away from equilibrium. ()

A foreign exchange market is stable when the supply curve of foreign exchange is positively sloped or, if negatively sloped, is negatively elastic than the demand curve of foreign exchange. ()