There are two main forms:

(1) No arbitrage. That is, using the interest rate difference between the capital markets of the two countries, short-term funds will be transferred from the low interest rate market to the high interest rate market to obtain spread income.

(2) arbitrage. That is to say, the arbitrageurs use forward foreign exchange transactions to avoid the risk of exchange rate changes while transferring short-term funds from place A to place B for arbitrage.

Arbitrage will change the relationship between supply and demand in different capital markets, make the short-term capital interest rates in different places tend to be consistent, narrow the difference between the recent exchange rate and the forward exchange rate of money, and keep the interest rate difference in the capital market in balance with the exchange rate difference in the foreign exchange market, thus objectively strengthening the integration of international financial markets.

Arbitrage pricing For a market with N assets and K factors, if a portfolio is sensitive to one factor unit and zero sensitive to other factors, then this portfolio is called pure factor portfolio. Rf is the risk-free rate of return, and λ is the expected return premium of one factor per unit sensitivity.

Extended data:

Arbitrage pricing theory hypothesis:

1. Investors have the same investment philosophy;

2. Investors are not satisfied, and the utility should be maximized;

3. The market is complete.

Different from the capital asset pricing model, arbitrage pricing theory does not have the following assumptions:

1. Single investment period;

2. No tax;

3. Investors can freely borrow at risk-free interest rates;

4. Investors choose the investment portfolio according to the mean and variance of the rate of return.

Baidu Encyclopedia-Arbitrage Pricing Theory