Tag Archives: Interest Rate Parity
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.
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.