Covered Interest Arbitrage (CIA) is the process whereby an investor earns a risk free profit by (1) borrowing funds in one currency, (2) exchanging those funds in the spot market for a foreign currency, (3)investing in the foreign currency at interest rates in a foreign country, (4) selling forward at the time of original investment, the investment proceeds to be received at maturity, (5) using the proceeds of the forward sale to repay the original loan, and (6) having a remaining profit balance.
Definition