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Please use the actual rate data to create a case of the Rectangular arbitrage(Covered Interest arbitrage)

Please use the actual rate data to create a case of the Rectangular arbitrage(Covered Interest arbitrage)

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Covered interest arbitrage

As described by interest rate parity, the spot and forward exchange rates are not constantly in the state of equilibrium. The potential for “risk-less” or arbitrage profit exists, when the market is not in equilibrium. The imbalance will be exploited by the arbitrager on a covered basis by investing in whichever currency offers the higher return. This is known as covered interest arbitrage.

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