The relation between the forward/spot ratio and interest rate differentials is called ______.

Question

Quizplus · Accepted Answer

The relation between the forward/spot ratio and interest rate differentials is called interest rate parity. This means that the difference in interest rates between two countries determines the difference in their exchange rates. If a country has a higher interest rate than another, its currency will appreciate relative to the other country's currency. This principle is essential in determining the fair value of forward exchange rates.

The Relation Between the Forward/spot Ratio and Interest Rate Differentials