Abstract
For this study, we used the covered interest rate parity (CIRP) relation to examine the extent to which the liberalization of Brazil's, Russia's, India's, and China's (BRIC) financial markets have resulted in the integration of BRIC countries' currency markets into the global financial markets. We tested for the interest rate parity market equilibrium condition between March 2004 and September 2008. Further, to estimate the economic significance, we also constructed a forward hedge portfolio to assess the degree of arbitrage possible during the period of study. Results suggested that profitable arbitrage opportunities do exist; however, these might be limited due to transaction costs, or regulatory, political, or other constraints. Our findings also indicate that currency markets of BRIC countries exhibit varying degrees of interest rate parity efficiency over the period of this study.