 Covered interest arbitrage

Covered interest arbitrage is a financial strategy that allows investors to take advantage of differences in interest rates between two countries while eliminating exchange rate risk. This is accomplished by using a forward contract to lock in an exchange rate for a future date. Here's how it works, step by step: 1. **Identify Interest Rate Differences**: An investor identifies two countries where the interest rates differ. For instance, if Country A has a higher interest rate than Country B, this presents an opportunity for arbitrage.