What is covered interest arbitrage?Covered Interest Arbitrage

Borrow one currency, convert it and earn interest on deposit while locking in the rate back with a forward, profiting when the forward strays from interest rate parity.

Learn “covered interest arbitrage” in an animated lesson

Arbitrage Strategies
Interest Rate Parity Arbitrage
A forward exchange rate isn't a guess; it's worked out from the interest rate gap between two currencies. When it strays, arbitrage it in four steps: borrow, convert, deposit, lock in.

Related terms

forward contract
interest rate parity
cross-currency basis

See how “covered interest arbitrage” works for yourself with an animation you can drag and play.

Go to “Interest Rate Parity Arbitrage”