20. INDIVIDUALS CAN NOT EXPLOIT TRIANGULAR ARBITRAGE BECAUSE THEY LACK THE COMPUTER TECHNOLOGY AVAILABLE TO INSTANTANEOUSLY DETECT MISALIGNMENTS IN CROSS EXCHANGE RATES 21. COVERED INTEREST ARBITRAGE IS A STRATEGY CAPITALIZING ON THE DIFFERENCE IN INTERST RATES BETWEEN 2 NATIONS WHILE COVERING YOUR EXCHANGE RATE RISK WITH A FORWARD CONTRACT. 22. COVERED INTEREST ARBITRAGE COMPOSED OF 2 PARTS--USING FAVORABLE INTEREST RATE DIFFERENTIALS TO INVEST IN A HIGHER YIELDING CURRENCY AND HEDGING THE EXCHANGE RISK THROUGH A FORWARD CURRENCY CONTRACT 23. THE REALIGNMENT DUE TO COVERED INTERST ARBITRAGE IS SIMILAR TO THE OTHER FORMS OF ARBITRAGE SINCE MARKET FORCES FROM THE COVERED INTEREST ARBITRAGE WILL EVENTUALLY LEAD TO MARKET REALIGNMENT 24. COVERED INTEREST ARBITRAGE IS THE LEAST COMPLEX FORM OF ARBITRAGE 25. WHEN MARKET FORCES CAUSE INTEREST RATES AND EXCHANGE RATES TO ADJUST SUCH THAT COVERED INTEREST ARBITRAGE IS NO LONGER FEASIBLE, THE RESULT IS AN EQULIBRIUM STATE KNOWN AS INTEREST RATE PARITY (IRP). 26.IN EQUILIBRIUM, THE FORWARD RATE DIFFERS FROM THE SPOT RATE BY A SUFFICIENT AMOUNT TO OFFSET THE INTEREST RATE DIFFERENTIALS BETWEEN THE 2 NATIONS 27. NUMEROUS ACADEMIC STUDIES HAVE EXAMINED IRP AND THE STUDIES GENERALLY DO NOT SUPPORT IRP. 28. ALTHOUGH DEVIATIONS FROM IRP DO OCCUR, THEY ARE USUALLY TOO SLIGHT TO MAKE COVERED INTEREST ARBITRAGE WORTHWHILE 29. THERE IS NO RELATIONSHIP BETWEEN INTEREST RATES AND EXCHANGE RATES 30. PURCHASING POWER PARITY THEORY ATTEMPTS TO QUANTIFY THE RELATIONSHIP BETWEEN INFLATION AND THE EXCHANGE RATE. 31. PPP THEORY IS ONE OF THE MOST POPULAR AND NON CONTROVERSAL THEORIES IN INTERNATIONAL FINANCE 32. THERE ARE 2 POPULAR FORMS OF PPP THEORY, ABSOLUTE FORM AND THE RELATIVE FORM OF PPP 33. THE ABSOLUTE FORM ACOUNTS FOR SUCH MARKET IMPERFECTIONS AS COUNTRY SPECIFIC TRANSPORTATION COSTS AND TAXES. 34. RELATIVE FORM OF PPP STATES IN THE ABSENCE OF INTERNATIONAL BARRIERS, CONSUMERS WILL SHIFT THEIR DEMAND TO WHEREVER PRICES ARE LOWEST 35. PPP THEORY PRESUMES THAT EXCHANGE RATE MOVEMENTS ARE DRIVEN COMPLETELY BY THE INFLATION DIFFERENTIALS BETWEEN 2 NATIONS, 36. DEVIATIONS FROM PPP EXIST