Assume that British interest rates are higher than U.S. rates, and that the spot rate equals the forward rate. Covered interest arbitrage puts upward pressure on the pounds spot rate and downward pressure on the pound's forward rate.
Step-by-step explanation:
Interest rate is the amount of interest charged by a person for lending his money. The interest rate for the amount borrowed or amount lent depends on the principal amount.
The spot rate also known as settlement price is the amount quoted for the immediate settlement of a property. It is determined based on the current market value of the property.
A forward rate is a forward-looking price which is quoted as the settlement price for the transaction that will not take place until specific date.