Covered Interest Arbitrage. Assume the following information: British pound spot rate = $1.65. British pound one-year forward rate = $1.65 British one-year interest rate = 12 %. U.S. one-year interest rate = 10 %. Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 9 percent. What would be their yield? Explain how the spot and forward rates of the pound would change as covered interest arbitrage occurs.