What is an Interest Rate Parity?

What is an Interest Rate Parity?

Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Interest Rate Parity”
Interest rate parity is a theory in which the interest rate differential between two
countries is equal to the differential between the forward exchange rate and the spot exchange
rate. Interest rate parity plays an essential role in foreign exchange markets, connecting
interest rates, spot exchange rates and foreign exchange rates.
The relationship can be seen when you follow the two methods an investor may take to convert
foreign currency into U.S. dollars. Option A would be to invest the foreign currency
locally at the foreign risk-free rate for a specific time period. The investor would
then simultaneously enter into a forward rate agreement to convert the proceeds from the
investment into U.S. dollars, using a forward exchange rate, at the end of the investing
period. Option B would be to convert the foreign currency
to U.S. dollars at the spot exchange rate, then invest the dollars for the same amount
of time as in option A, at the local risk-free rate. When no arbitrage opportunities exist,
the cash flows from both options are equal.


  • Алексей Васильев

    September 16, 2015

    Good time of day! We are interested in your channel, if this is your content.
    I present you the Partner Program SNG Network, which allows you to earn on YouTube!
    Submit the request in SNG Network – https://docs.google.com/forms/d/1uKN-vFMOZLkALLZCtUSDv0zcctOqg9y8FRvrNRMnad0
    Our advantages:
    Issue a check on a channel with 5000 subscribers!
    Interest rate:
    75% – up to 100,000 page views per month
    80% – from 100 to 000 views per month
    85% – from 500 to 000 views per month
    90% – from 2.5 million page views per month
    95% – from 5 000 000 page views per month
    Personal Area
    Referral system 5%
    Special offers for big channels
    Payments Webmoney, Western Union, PayPal
    Pay monthly for each calendar month. If you are connected to the November 15th date, the first translation you will get after the 20th of December, early January
    Treaty open, apply to disconnect at any time. After 90 days, you will be disconnected.
    High CPM (payment for 1000 display 2-4 dollars!)
    us group on Facebook – https://www.facebook.com/groups/sngnetwork
    My facebook – https://www.facebook.com/profile.php?id=100009823022784

  • JS Investing

    April 11, 2016

    Good video! Just very fast…

  • Mandu Grg

    June 22, 2017

    Speak slow next time


Leave a Reply