Covered Interest Rate Parity

Covered Interest Rate Parity

The principle that the yields from interest-bearing foreign and domestic investments should be equal when the currency market is used to predetermine the domestic currency payoff from a foreign investment.

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Covered Interest Rate Parity

The principle stating that yields from two equivalent investments in the domestic market and the foreign market, respectively, are equal after accounting for fluctuations in the exchange rate. See also: Purchasing power parity, Covered interest rate arbitrage.