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interest rate parity
(redirected from Interest parity condition)

    Also found in: Wikipedia 0.12 sec.
Interest Rate Parity
A theory that the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

Notes:
This relationship must hold if there are to be no arbitrage opportunities.

interest rate parity
The interrelationship between currency exchange forward rates and spot rates that result from interest rate differentials. If interest rates are higher in the United States than in a foreign country, the forward dollar value of the foreign currency will exceed the spot dollar value of the foreign currency.
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