Exchange rate parity holds that the interest rate difference between two countries is equal to the difference between forward exchange rate and spot exchange rate. The theory of forward exchange rate determination put forward by Keynes and Einzger. They believe that the equilibrium exchange rate is formed through foreign exchange transactions caused by international arbitrage. When there is a difference in interest rates between the two countries, funds will flow from low-interest countries to high-interest countries for profit. However, when comparing the yields of financial assets, arbitrageurs should not only consider the yields provided by the interest rates of the two assets, but also consider the changes in the returns of the two assets due to exchange rate changes, that is, foreign exchange risk. Arbitrators often combine arbitrage with swap business to avoid exchange rate risk and ensure no loss.

Non-offset interest rate parity refers to the arbitrage behavior of investors under the condition that capital has sufficient international liquidity, which makes the yields of similar assets denominated in different currencies tend to be consistent in the international financial market.

arbitrate

Arbitrage refers to the trading behavior that futures market participants use the price difference between different months, different markets and different commodities to buy and sell two different futures contracts at the same time to obtain risk profits from them. It is a special way of futures speculation, which enriches and develops the content of futures speculation, making futures speculation not only limited to the horizontal change of the absolute price of futures contracts, but also turned to the horizontal change of the relative price of futures contracts. This is often called arbitrage.

The goal of arbitrage operation research is "basis" and "spread" in the market. For these two concepts, Sharp, the founder of the famous "Capital Asset Pricing Model", defined them like this. "Basis" is the difference between the spot market price of an asset and the corresponding futures price. The formula is: basis = spot price-futures price; Sharp refers to speculators who "have multiple positions in one contract at the same time and short positions in another contract" or "gain profits through the imbalance between futures prices of related assets" as "spread speculators". Based on this, we can call the difference of spot price "spot basis"; The price difference between different contracts is called "contract price difference".

Therefore, we can divide arbitrage into basis arbitrage and spread arbitrage. The former is arbitrage by using the difference between the spot market price and the corresponding futures price; The latter uses the spread of different contracts in commodity futures market for arbitrage.

Normal price difference refers to the reasonable price difference when the market is in a rational state, which is generally determined by some internal factors that affect the market price relationship. The normal price difference between contracts includes storage cost, capital interest, value-added tax, etc.