Interest rate parity gives the relationship between the forward rate and the spot rate of exchange in terms of interest rates.

Question

Quizplus · Accepted Answer

Interest rate parity (IRP) explains the relationship between the spot exchange rate, forward exchange rate, and interest rates. It suggests that the difference between the exchange rate and interest rates in two countries should be equal to the difference between the forward exchange rate and the spot exchange rate. Therefore, the statement is true.

Interest Rate Parity Gives the Relationship Between the Forward Rate