Interest-rate parity is a cost-of-carry model.

Question

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Interest-rate parity refers to the equilibrium condition in the foreign exchange market where the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. It is a cost-of-carry model as it compares the cost of borrowing money in one currency and investing it in another currency with the cost of carrying the currency itself.

Interest-Rate Parity Is a Cost-Of-Carry Model