Interest rate parity (IRP) states that the foreign currency's forward rate premium or discount is roughly equal to the interest rate differential between the United States and the foreign country.

Question

Quizplus · Accepted Answer

Interest rate parity is a theory that states that the difference between the forward exchange rate and the spot exchange rate should be equal to the difference between the interest rates of the two countries. This relationship is based on the idea that investors should be indifferent between investing in one currency or another, as the return should be the same due to the interest rate differential being reflected in the forward exchange rate.

Interest Rate Parity (IRP) States That the Foreign Currency's Forward