Suppose you observe that $90-$day interest rate across the eurozone is $4\%,$ 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\mathrm{.}25.$

You have $$800,000$ that you wish to use in order to engage in covered interest arbitrage.

To start, you exchange your $$800,000$ 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\mathrm{.}25.$