The situation in which the difference in interest rates between two currencies is equal to the expected change in the spot rate over the same period is known as:
A) covered interest arbitrage.
B) covered interest parity.
C) uncovered interest parity.
D) the forward-spot reversal.

Question

Quizplus · Accepted Answer

Uncovered interest parity refers to the condition where the difference in interest rates between two countries is equal to the expected change in exchange rates between those countries' currencies. This concept does not involve the use of forward contracts to hedge against exchange rate risk, unlike covered interest parity.

The Situation in Which the Difference in Interest Rates Between