The theory of ________ states that the difference in the national interest rates for securities of similar risk and maturity should be equal to but opposite in sign to the forward rate discount or premium for the foreign currency, except for transaction costs.

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10-11-2019
Business

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The theory of ________ states that the difference in the national interest rates for securities of similar risk and maturity should be equal to but opposite in sign to the forward rate discount or premium for the foreign currency, except for transaction costs.

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Nyctalus Nyctalus · Answer 1 · 2019-11-11T06:19:37+01:00

Answer: Interest rate parity

Explanation: In simple words, interest rate parity refers to a situation in which the interest rates of a similar security is different in two different countries.

This difference occurs due to the economic stability and the position of the relative currency of that country as both of the factors heavily affects the judgement and perception of the investors.