Tag Archives: Interest Rate Parity

Currency Trading – Introduction to Derivative instruments Part I

Foreign exchange trading market happens to be one of the largest financial markets in the world. On an average, foreign exchange worth $5.3 trillion is traded every day.

Uncovered interest rate parity

The uncovered interest parity depicts that the difference in interest rates between the two countries reflects the rate at which investors expect the high- interest rate currency to depreciate against the low- interest rate currency. Premiums and discounts on forward rates are based upon interest rate parity between the two countries/currencies involved in the transaction.