What is interest rate parity?Interest Rate Parity
The forward exchange rate is set by the interest rate gap between two currencies: the lower-rate currency trades at a higher forward price (a premium).
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- Arbitrage StrategiesInterest Rate Parity Arbitrage
A forward exchange rate isn't a guess; it's worked out from the interest rate gap between two currencies. When it strays, arbitrage it in four steps: borrow, convert, deposit, lock in.
- Hedging StrategiesHedging Currency Risk: Locking In with Forwards
An exporter won't receive €1 million for 3 months. If the exchange rate falls, the profit vanishes. What are the trade-offs between a forward contract and an FX option?
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