The covered interest rate parity CIRP indicates that the interest rate differential is approximately equal to___________.
A) expected premium
B) risk premium
C) forward premium
D) exchange rate premium

Question

Quizplus · Accepted Answer

The covered interest rate parity (CIRP) suggests that the interest rate differential should be approximately equal to the forward premium or discount on the foreign currency. This means that if an investor borrows money in one currency and invests in another currency, the exchange rate movements will determine their returns, with the interest rate differential offset by the change in exchange rates. Therefore, the forward premium is a key indicator in determining whether CIRP holds or not. Options A, B, and D are not directly related to the CIRP concept.

The Covered Interest Rate Parity CIRP Indicates That the Interest