A type of arbitrage that involves attempting to profit from specific deviations from interest rate parity by entering into a series of transactions in which the parity condition can be exploited. For example, an investor may carry out such an arbitrage by buying bonds, lending them out for cash, on a repo basis, to fund their purchase, selling bond futures and delivering the underlying bonds to the buyer at maturity date of the futures.

Another example is the arbitrage that can be constructed in a situation where foreign interest rates are lower than local rates: an investor might borrow foreign currency, convert the proceeds locally and invest local currency amount at higher rates (local rates). At the end, the round trip completes upon converting the proceeds at the prevailing forward exchange rate.

The ability to capitalize on this type of arbitrage depends on the size of transaction costs. If transaction costs are zero or very little, the profits of arbitrage may come about endlessly.

It is also known as a round-trip arbitrage.