FinancialAnaly

Honestly, the best way to think about this is not with a formula, however I totally understand where you're coming from.

"covered" in the Covered Interest Arbitrage simply means you are covering your currency investment with a forward contract. This means you are buying foreign currency, for why would you need to long a forward contract on domestic currency?

Look for where the arbitrage is, and buy low, sell high. That's it. Remember to adjust for your time period, if less than 1.

Typically, a broker quotes a forward price with a higher exchange rate than what is suggested by interest rate parity. You sell that, which means you long a forward to exchange foreign currency to domestic currency at the end of the contract date. You borrow at domestic risk free rate, invest the foreign currency at the foreign risk free rate, repatriate the foreign currency to domestic using the forward and pay back the original loan interest plus principal.