Arbitrage Rule of Thumb: If the difference in interest rates is greater than the forward premium/discount, or expected change in the spot rate for UIA. invest in the higher interest yielding currency. If the difference in interest rates is less than the forward premium (or expected change in the spot rate), invest in the lower yielding currency. In order to lock-in a covered interest arbitrage (CIA) profit. Heidi Hot Jensen should invest in the lower yielding interest rate (USD) and simultaneously sell the proceeds forward to DKr. Here, 1.678 is greater than 1, i.e. Interest rate diff is lower than FORWARD PREMIUM (ARBITRAGE RULE OF THUMB) Step 1. Use the dollar funds at hand (CIA profit uses fund at hand) to invest in the US market. Exchange the USD funds at spot rate to get Danish Krone proceeds. Which you invest in the in the Local Krone market. Then sell the invested dollar forward to get Danish krone proceeds, (if interest rate is lower than forward premium invest in the lower interest market and then sell that proceeds forward). In this problem, the lower interest market is Dollar and sell the dollar proceeds forward to get Danish Krone, Compare the two to outcomes in Danish Krone to calculate the profit