There is a close link between the interest rates in two countries and the forward rate premium or discount. The theory about this is :

Question

Quizplus · Accepted Answer

Covered Interest Arbitrage and Interest Rate Parity theory explain the relationship between the interest rates of two countries and the forward rate premium or discount. This theory states that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate, adjusted for the time period. This prevents arbitrage opportunities due to interest rate differentials.

There Is a Close Link Between the Interest Rates in Two