We use deviations in the covered interest rate parity (CIRP) condition to examine violations of the law of one price (LOP). We use the time periods around the recent financial crisis to examine the dynamics of CIRP violations. We find that, for both developed and emerging economies, LOP tends to hold during normal economic times but that it is severely violated during periods of financial distress. In addition, we examine the determinants of CIRP deviations. Our results indicate that, in developed economies, CIRP deviations are primarily driven by global risk factors. In emerging economies, however, CIRP deviations are driven by both global and local risk factors.