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. By Barry Norman, Investors Trading Academy

Comments

1. Good video! Just very fast...
2. 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