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Suppose you observe that the 90 -day interest rate across the eurozone is 3%, while...

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Suppose you observe that the 90 -day interest rate across the eurozone is 3%, while the interest rate in the U.S. over the same time period is 1%. Further, the spot rate and the 90 -day forward rate on the euro are both $1.60. You have $400,000 that you wish to use in order to engage in covered interest arbitrage. To start, you exchange your $400,000 for euros and deposit the funds in a bank in the eurozone. To lock in the exchange rate (for when you convert the euros back to dollars), you euros forward at a forward rate of $1.60

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