If interest rate parity (IRP) exists, then the money market hedge will yield the same result as the options hedge.

Question

Quizplus · Accepted Answer

Interest rate parity (IRP) primarily relates to the relationship between spot and forward exchange rates, not directly affecting the equivalence of outcomes between money market hedges and options hedges. Money market hedges involve borrowing and lending in different currencies to lock in exchange rates, while options hedges use options contracts to manage exchange rate risk, leading to potentially different costs and outcomes.

If Interest Rate Parity (IRP) Exists, Then the Money Market