Interest rate parity (IRP) states that the foreign currency's forward rate premium or discount is roughly equal to the interest rate differential between the U.S. and the foreign country.

Question

Quizplus · Accepted Answer

Interest rate parity (IRP) is a theory that suggests that the forward exchange rate between two currencies should be equal to the ratio of the two countries' interest rates. This implies that the forward rate premium or discount on a foreign currency should be roughly equal to the interest rate differential between the United States and the foreign country. Therefore, option A is correct.

Interest Rate Parity (IRP) States That the Foreign Currency's Forward