You have following information: Spot exchange rate: CAD1=USD0.80 1-year forward rate : CAD1=USD0.79 1-year Canadian interest rate 4% 1-year U.S. interest rate 2.5% Start with USD1,000,000 , how many percent is covered interest arbitrage return higher than US interest rate (which is 2.5%)?

So if you start with USD1m, after 1 round of arbitrage, you get back USD1.06m, your return is 1.06/1-1=6%, which is 3.5% higher than the interest you earn if invest in US.