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  2. Interest rate parity - Wikipedia

    en.wikipedia.org/wiki/Interest_rate_parity

    Interest rate parity is a no-arbitrage condition representing an equilibrium state under which investors compare interest rates available on bank deposits in two countries. [1] The fact that this condition does not always hold allows for potential opportunities to earn riskless profits from covered interest arbitrage .

  3. Category:Interest rates - Wikipedia

    en.wikipedia.org/wiki/Category:Interest_rates

    Download as PDF; Printable version; ... Interest rates is included in the JEL classification codes as JEL: ... Interest rate parity; Interest rate risk; ISDAfix; L.

  4. Impossible trinity - Wikipedia

    en.wikipedia.org/wiki/Impossible_trinity

    The formal model underlying the hypothesis is the uncovered Interest Rate Parity condition which states that in absence of a risk premium, arbitrage will ensure that the depreciation or appreciation of a country's currency vis-à-vis another will be equal to the nominal interest rate differential between them. Since under a peg, i.e. a fixed ...

  5. Foreign exchange swap - Wikipedia

    en.wikipedia.org/wiki/Foreign_exchange_swap

    Download as PDF; Printable version ... The relationship between spot and forward is known as the interest rate parity, ... points is roughly proportional to the ...

  6. Uncovered interest arbitrage - Wikipedia

    en.wikipedia.org/wiki/Uncovered_interest_arbitrage

    The dollar deposit interest rate is 3.4% in the United States, while the euro deposit rate is 4.6% in the euro area. The current spot exchange rate is 1.2730 $/€. For simplicity, the example ignores compounding interest. Investing US$5,000,000 domestically at 3.4% for six months ignoring compounding, will result in a future value of US$5,170,000.

  7. Covered interest arbitrage - Wikipedia

    en.wikipedia.org/wiki/Covered_interest_arbitrage

    Using forward contracts enables arbitrageurs such as individual investors or banks to make use of the forward premium (or discount) to earn a riskless profit from discrepancies between two countries' interest rates. [2] The opportunity to earn riskless profits arises from the reality that the interest rate parity condition does not constantly hold.

  8. Interest rate cap and floor - Wikipedia

    en.wikipedia.org/wiki/Interest_rate_cap_and_floor

    Similarly, an interest rate floor is a derivative contract in which the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price. Caps and floors can be used to hedge against interest rate fluctuations. For example, a borrower who is paying the LIBOR rate on a loan can protect himself against ...

  9. International Fisher effect - Wikipedia

    en.wikipedia.org/wiki/International_Fisher_effect

    The effect estimates future exchange rates based on the relationship between nominal interest rates. Multiplying the current spot exchange rate by the nominal annual U.S. interest rate and dividing by the nominal annual U.K. interest rate yields the estimate of the spot exchange rate 12 months from now: