covered interest rate parity means: Principle that yields When the investment in domestic and interest-bearing overseas investments is made, they should be equally. The currency market can be used to determine the final price Foreign investment pays domestic currency dividends. Let’s say that the interest rate on 90 U.K. Treasury notes is 4, but it only pays 1 in U.S. The U.S. investor attempts to profit from the higher yield by translating U.S. Dollars to Sterling in order to purchase the Treasury bill. They then trade 90-days ahead Sterling to convert the principal and interest back into U.S. dollar. The transaction’s return is guaranteed by Covered Income Parity. Arbritrage would result if it were different. (in Stock Market Dictionary)