Interest rate parity is when under normal market conditions, investors should not be able to make arbitrage profits because premiums or discounts are exactly offset by adjusted interest rate differentials.

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Interest rate parity is a theory which suggests that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. This condition ensures that arbitrage opportunities are eliminated, as the potential gains from interest rate differentials are offset by the costs or gains from engaging in forward contracts.

Interest Rate Parity Is When Under Normal Market Conditions, Investors