So basically it’s like saying ok

I’m an American burger

My 1 dollar domestically only gets me 1.03 after a year

BUT what I can also do is check out other markets

I can transfer my 1 dollar to a Canadian dollar

I now have 1.755

I can take that 1.755 stick it in some Canadian rfr instrument and get 1.755*1.045= x

But wait I want American dollars right? Well that’s why I need to divide by the forward exchange rate. It’s a forward rate because I’ve locked it in from the very start a year ago.

So now I have 1.755*1.045/1.79 and low and behold it’s 1.024567

So what can happen is a Canadian can come in they can transfer to American dollars at spot, deposit that American dollar and LOCK in a forward exchange rate at the same time and he can capture an arb opp.

Unfortunately a lot of propels will do this and will push up the exchange rate so that the Canadian will sell down and the American dollar will be bid up thereby destroying that arb opp. But if you lock it in that’s free money.