(1) Carry arbitrage refers to selling forward high-interest currencies in the foreign exchange market and transferring funds to countries or regions with high-interest currencies at the same time, that is, doing swap transactions while arbitrage to avoid exchange rate risks.

(2) Non-covered interest arbitrage, also known as no-carry arbitrage, refers to the transfer of funds from low-interest currencies to high-interest currencies in order to seek interest rate differential income. This kind of transaction does not need to be closed in the opposite direction at the same time, but it bears the risk of devaluation of high-interest currencies.

2. Differences in calculation formulas

(1) carry arbitrage According to the parity theorem of interest rate, the parity formula is RH-RF = (f-s)/S. Spot exchange rate 1 is S currency, forward exchange rate 1 is F currency, domestic interest rate is RH, and foreign interest rate is RF.

(2) In the no-carry arbitrage transaction, the capital flow is mainly determined by the no-offset spread. Let the interest rate in Britain be Iuk and the interest rate in the United States be Ius. If the spread of UD is not offset, then UD = IUK-IUS. With the spot exchange rate unchanged, the greater the interest rate difference between the two countries, the greater the profit of the arbitrageur. Under the condition that the interest rate difference between the two countries remains unchanged, the higher the interest rate, the greater the profit of the arbitrageur.

3. Functional differences

(1) Covered interest arbitrage objectively plays a spontaneous role in regulating capital flows. Driven by the pursuit of profit, capital flows from rich places to scarce places, making capital play a more effective role. In addition, the trading activity of covered interest arbitrage can balance the relationship between foreign exchange supply and demand in the global financial market spontaneously.

(2) In the no-carry arbitrage transaction, the capital flow is mainly determined by the no-offset spread. Arbitrage provides investors with hedging opportunities and usually has low volatility.

1. carry arbitrage refers to borrowing a currency at a lower interest rate, converting it into a country's currency with a higher interest rate through spot foreign exchange transactions and investing it to earn interest spread income. At the same time, in order to prevent the risk of exchange rate changes during the investment period, this arbitrage is usually combined with swap transactions, that is, the cost of buying cash and selling foreign exchange in swap transactions is deducted from the higher interest income to earn a certain profit.

2. Non-covered interest arbitrage refers to the transfer of funds from a currency with low interest rate to a currency with high interest rate, so as to earn income from the spread, but at the same time, it does not use transactions in the opposite direction to close the position. This arbitrage bears the risk of devaluation of high interest rate currencies and is speculative. Because of the uncertainty of exchange rate, the result is also uncertain.

Comparing these two risks, the risk of secured interest arbitrage is lower than that of unsecured interest arbitrage.