Abstract
This study exploits the covered interest arbitrage (CIA) possibility when the European market experienced financial crisis. The deviation of covered interest parity (CIP) test is conducted for the major currencies against the Euro. We find that the CIA opportunity arises for Australian dollar (AUD), Canadian dollar (CAD), and Japanese yen (JPY) in the volatile European financial crisis market. However, the CIA possibility does not exist for the British pound (GBP) and US dollar (USD)during the European financial turbulence. The findings of this study show that the currency market participants, particularly the arbitrageurs can make profit using major currency markets other than GBP and USD when financial turbulence occurred in the Euro zone. It indicates that GBP and USD behave as stable currencies in the context of CIA possibility during financial market disaster.