The term "uncovered interest parity" refers to

Question

Quizplus · Accepted Answer

Uncovered interest parity is the relationship between exchange rate changes and international interest rate differentials. It suggests that the difference between the interest rates of two countries should be reflected in the exchange rate between their currencies. If there is a higher interest rate in one country than another, investors will flock to that country, increasing demand for its currency and causing its value to rise. The opposite should happen if there is a lower interest rate in a country. This principle is related to the efficient market hypothesis, which assumes that market participants have access to all relevant information, making it impossible to consistently generate returns above the market average.

The Term "Uncovered Interest Parity" Refers to