Uncovered interest parity refers to:
A) borrowing in the low-interest currency and lending in the high-interest currency without covering against a change in the exchange rates.
B) foolish actions that usually are not successful.
C) activities that are designed to raise or lower interest rates but are risky.
D) the practice of depositing all of one's funds in one currency without regarding the pros and cons of such a transaction.

Question

Quizplus · Accepted Answer

Uncovered interest parity is a concept in international finance where investors borrow money in a country with a lower interest rate and invest in a country with higher interest rates, expecting to make a profit from the interest rate difference. This is done without covering against a potential change in exchange rates, hence the term "uncovered."

Uncovered Interest Parity Refers To