Question
Kim Deal, a foreign exchange (FX) trader working at AMBS hedge fund in New York, U.S., has uncovered persistent violations of covered interest rate parity
Kim Deal, a foreign exchange (FX) trader working at AMBS hedge fund in New York, U.S., has uncovered persistent violations of covered interest rate parity for USD (U.S. dollar) and MXN (Mexican Peso) in the market. Using historical data, Kim Deal implements an FX strategy exploiting these opportunities and confirms spectacular $ returns. Kim Deal wants to convince her hedge fund boss to exploit the persistent violations, but some financial economists argue that such violations are only the results of frictions in the market and often a reward for taking risks.
Critically evaluate this contention of financial economists on Kim Deal's discovery.
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