alternative. Effect of arbitrage If there were no impediments, such as transaction costs, to covered interest arbitrage, then any opportunity, however minuscule, to profit from it would immediately be exploited by many financial market participants, and the resulting pressure on domestic and forward interest rates and the forward exchange rate premium would cause one or more of these to change virtually instantaneously to eliminate the opportunity. In fact, the anticipation of such arbitrage leading to such market changes would cause these three variables to align to prevent any arbitrage opportunities from even arising in the first place: incipient arbitrage can have the same effect, but sooner, as actual arbitrage. Thus any evidence of empirical deviations from covered interest parity would have to be explained on the grounds of some friction in the financial markets. Evidence for covered interest arbitrage opportunities Economists Robert M. Dunn, Jr. and John H. Mutti note that financial markets may generate data inconsistent with interest rate parity, and that cases in which significant covered interest arbitrage profits appeared feasible were often due to assets not sharing the same perceptions of risk, the potential for double taxation due to differing policies, and investors' concerns over the imposition of foreign exchange controls cumbersome to the enforcement of forward contracts. Some covered interest arbitrage opportunities have appeared to exist when exchange rates and interest rates were collected for different periods; for example, the use of daily interest rates and daily closing exchange rates could render the illusion that arbitrage profits exist. Economists have suggested an array of other factors to account for observed deviations from interest rate parity, such as differing tax treatment, differing risks, government foreign exchange controls, supply or demand inelasticity, transaction costs, and time differentials between observing and executing arbitrage opportunities. Economists Jacob Frenkel and Richard M. Levich investigated the performance of covered interest arbitrage strategies during the 1970s' flexible exchange rate regime by examining transaction costs and differentials between observing and executing arbitrage opportunities. Using weekly data, they estimated transaction costs and evaluated their role in explaining deviations from interest rate parity and found that most deviations could be explained by transaction costs. However, accommodating transaction costs did not explain observed deviations from covered interest rate parity between treasury bills in the United States and United Kingdom. Frenkel and Levich found that executing such transactions resulted in only illusory opportunities for arbitrage profits, and that