What is interest rate parity?

What is interest rate parity?

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What is interest rate parity?

Answer and ExplanationSolution by a verified expert
Explanation Interest rate parity means that in equilibrium, investors shall earn the same return, in all countries, on interest bearing instruments after adjusting for risk. The return is affected...

Explanation

Interest rate parity means that in equilibrium, investors shall earn the same return, in all countries, on interest bearing instruments after adjusting for risk. The return is affected due to two factors, the interest rate itself and the exchange rate movements.

Verified Answer

Interest rate parity: Investors earn the same return, in all countries, after adjusting for risk.

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