Explanation

Interest rate parity equalizes the interest rates from country to country. When a difference occurs, the currency with the higher interest rate is expected to depreciate and the currency with the lower interest rate will appreciate. The economic result is that the interest received will end up being the same from country to country.

Verified Answer

Interest rate parity implies that any difference in interest rates between currencies are smoothed out by differences in exchange rates, implying that rates are essentially the same.