If interest rate parity exists, financing with a foreign currency may still be feasible, but it would have to be conducted on an uncovered basis (i.e., without use of a forward hedge).

Question

Quizplus · Accepted Answer

If interest rate parity exists, the forward exchange rate should reflect the future spot exchange rate, making uncovered financing feasible. However, there may be additional risks involved without the use of a forward hedge.

If Interest Rate Parity Exists, Financing with a Foreign Currency