A form of arbitrage that involves switching from a domestic currency that carries a lower interest rate to a foreign currency that offers a higher rate of interest on deposits. There is a foreign exchange risk implicit in this transaction since the investor or speculator will need to convert the foreign currency deposit proceeds back into the domestic currency some time in the future. In other words if your chosen currency goes down in value against your domestic currency more than the positive interest rate difference you could lose. The term “uncovered” in this arbitrage refers to the fact that this foreign exchange risk is not covered through a forward or futures contract.
I hope the above currency trading article was of help to you.
Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.