COVERED interest arbitrage (CIA), is where investors borrow in countries and currencies exhibiting relatively low interest rates and convert the proceeds into currencies that offer much higher interest rates. The transaction is "covered," because the investor does not sell the higher yielding currency proceeds forward.

Question

Quizplus · Accepted Answer

Covered interest arbitrage involves an investor hedging currency risk by using a forward contract to sell the higher yielding currency proceeds forward, not by avoiding such a sale.

COVERED Interest Arbitrage (CIA), Is Where Investors Borrow in Countries