In these markets, the law of one price implies the covered interest rate parity (CIP) condition.
Verdelhan, "Deviations from Covered Interest Rate Parity," NBER Working Paper No.
Under the covered interest rate parity (CIRP), the relationship between interest rates and the spot and forward currency values of two countries are in equilibrium, with virtually no pure arbitrage opportunities (Madura, 2007).
(1992), "Non-Reversed Investment and Borrowing, Transactions Costs and Covered Interest Rate Parity," International Review of Economics and Finance 1(2): 107-119.
* the covered interest rate parity
for the case in which a futures contract is entered into;
Although both domestic and international interest rates fell (SBI and JIBOR respectively fell from 9.53% to 8.66% and from 9.95% to 8.85%, while SIBOR dropped from 1.135% to 1.118%), but the decline in the swap premium rate significantly improved covered interest rate parity
(CIP) from -0.76% to 0.02%.
Table 1 presents five measures used in the literature to quantify the degree of capital mobility - (i) covered interest rate parity
(CIP), (ii) uncovered interest parity (UIP), (iii) real interest rate parity (RIP), (iv) saving-retention coefficient (Feldstein and Horioka 1980), and (v) the offset coefficient (Argy and Kouri 1974 and Kouri and Porter 1974).
Adrien Verdelhan and coauthors Wenxin Du, and Alexander Tepper received the AQR Insight Award for their paper on "The Deviations from Covered Interest Rate Parity
Amid the declining trend in general with slight increase in Singapore inter bank offered rate (SIBOR), the decline in swap premium caused covered interest rate parity
to improve to -0.02% in April from -20% in Mach.