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interest rate parity

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Financial Dictionary

Interest Rate Parity

A theory that the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

Investopedia Commentary

This relationship must hold if there are to be no arbitrage opportunities.

Related Links

A Primer On The Forex Market
Getting Started In Forex
Forces Behind Interest Rates
Trying To Predict Interest Rates
Trading the Odds with Arbitrage

See also: Arbitrage, Fixed Interest Rate, Interest Rate, Interest Rate Ceiling, Interest Rate Swap, Interest Sensitive Stock

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Online Commodity Trading
Trade 300+ Commodity Markets Web-Based Broker, Not Software!
www.optionsXpress.com
Interest Rate Parity
The Wall Street Journal Online. Free Registration. Sign Up Now.
www.wsjregistration.com
Financial Dictionary

interest rate parity

The interrelationship between currency exchange forward rates and spot rates that result from interest rate differentials. If interest rates are higher in the United States than in a foreign country, the forward dollar value of the foreign currency will exceed the spot dollar value of the foreign currency.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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