Covered interest parity
A relationship between interest rates and exchange rates derived from the absence of an arbitrage opportunity.
Both these investments are risk-free (apart from inflation risk) since all values are known at the time of investment. They must therefore have the same return if there is no arbitrage.
The same argument can be repeated for investments of different lenghts thus linking the term structure of interest rates to forward exhange rates.
Reference: Oxford Press Dictonary of Economics, 5th edt.
Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >