If you invest in the U.S., you will get $1,000,000*(1+.08/2)=$1,040,000 after 6 months. If you invest in Germany, you start with $1,000,000*1.01 /$= 1,010,000 to invest in Germany, get 1,010,000 *(1+.07/2)= 1,045,350 after 6 months, and convert it back @ .99/$ to $1,055,909.09 in 6 months. So, invest in Germany and borrow in U.S. and have $15,909.09 arbitrage profit. Intuition behind this: Euro has a forward premium of 2.02% over six-month time, which adds to the return of 3.5% in Germany for six months. The investment in Germany is earning a 5.52% (=3.5%+2.02%) return in dollar terms, higher than 4% in the US. Therefore, we should borrow at 4% in the US and invest in Germany at 3.5% for six months. this is an answer to a problem. i need help understanding the math behind the euro having a forward premium od 2.02%