what would an uncovered interest arbitrage imply 
uncovered interest arbitrage implies that foreign exchange investors can turn a profit through taking out a loan in a currency that has a low interest rate and buying a foreign currency with a high interest rate the bottom lineuncovered interest rate parity is based on the theory that foreign exchange rates smooth out the differentials between the interest rates of two different countries however this theory may not always hold macroeconomic factors such as monetary policy distortions in foreign exchange markets and time horizons can affect the validity of this theory 1for this reason investors may use this as an opportunity to earn money through taking a loan in a domestic currency with low interest rates and buying a foreign currency with higher rates as market imperfections and other factors affect the movement of currencies 