Interest Parity

Interest Parity

A situation in which the interest rates in two currencies are equal because of differences in their exchange rates. For example, if the U.S. dollar has a 4% interest rate and the British pound has a 5% interest rate, but the exchange rate difference is 1%, the dollar and the pound are said to have interest parity.
References in periodicals archive ?
The Dodd-Frank legislation contains rules that have impeded the functioning of the international monetary market: by raising US dollar funding costs for foreign banks, the rule compromised so-called covered interest parity.
The second special feature examines violations in covered interest parity, which is important for the role of the euro as an international funding currency.
Shin-ichi Fukuda, "Strong Sterling Pound and Weak European Currencies in the Crises: Evidence from Covered Interest Parity of Secured Rates" (NBER Working Paper No.
The uncovered interest parity (UIP) condition states that the interest rate differential between two currencies will be offset by an equal rate of depreciation of the higher-yielding currency against the lower-yielding currency.
Exchange Rate Economics: The Uncovered Interest Parity Puzzle and Other Anomalies
The conventional view is that uncovered interest parity (UIP) and PPP are appealing in theory but rejected empirically.
Bahmani-Oskooee, Mohsen and Das, Satya (1985), "Transaction Costs and the Interest Parity Theorem", in Journal of Political Economy, August 1985, 793-99
Testing Uncovered Interest Parity at Short and Long Horizons During the Post-Bretton Woods Era.
Earlier empirical literature on the uncovered interest parity focused mostly on developed economies rather than on emerging markets.
Our aim in this paper is to test whether interest parity holds at the industry level.
The current study attempts to examine the extent of market integration among GCC members by testing for the presence of a well-known condition of interest parity, using univariate and other panel unit root tests.
For many years speculators and investors borrowed in yen, bought assets in high yielding currencies and therefore benefited both from low yen borrowing rates and the depreciating yen, which is contrary to uncovered interest parity.