The scenario was presented as follows: > ABC's central bank has 10% interest rates. DEF's central bank has 1% interest rates. […] You could borrow DEF 1B, conv

The scenario was presented as follows: > ABC's central bank has 10% interest rates. DEF's central bank has 1% interest rates. […] You could borrow DEF 1B, convert to ABC, earn 10% interest and then pay it back later. If the exchange rate remains fixed, that would be a risk-free return of 9%. If you have now 100 ABC = 100 DEF you have the choice of getting in 1 year 110 ABC or 101 DEF. If ABC depreciates against DEF and in one year 1 ABC = 0.918 DEF both choices become equivalent.