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Interest Rate Parity

   Also found in: Acronyms, Wikipedia 0.01 sec.
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.

Interest Rate Parity
A theory stating that the difference between interest rates in two countries is the difference between the foreign exchange rate and the spot rate of their two currencies. According to this theory, when one makes two fixed investments in two different currencies, the return on both investments are the same even though interest rates may be different in absolute terms. See also: Purchasing power parity.


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Uncovered interest rate parity and the expectations hypothesis of the term structure: Empirical results for the US and Europe.
Using a wider set of models that have been proposed in the last decade -- interest rate parity, productivity based models, and a composite specification incorporating sticky-price, productivity, and portfolio balance models - we compare these models against a benchmark, the Dornbusch-Frankel sticky price monetary model.
Equation (8) is the uncovered interest rate parity condition, which states that the domestic nominal interest rate [R.
 
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