Interest Rate Parity (IRP) Explained | Foreign Exchange Rates

Join Ryan O'Connell, CFA, FRM, as he unravels the crucial concept of Interest Rate Parity (IRP) and its significant impact on foreign exchange markets. This comprehensive guide explains the Interest Rate Parity condition, essential for understanding currency relationships and identifying potential arbitrage opportunities. Learn the IRP formula and watch Ryan demonstrate its practical application using real market data to solve for forward exchange rates. Whether you're a finance professional, forex enthusiast, or economics student, this video provides valuable insights into how Interest Rate Parity shapes global currency dynamics and influences international investment decisions.

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Chapters:
0:00 - Interest Rate Parity (IRP) Definition
1:29 - Interest Rate Parity Formula
4:38 - Solving For Forward Rate W/ Real Data

*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

[randallblake]

Great ratio of useful information per unit of time on this video! Good job.

[Alpacaattaka]

great stuff Ryan, randomly turned this on and I learned a ton!

[gustavobuquera]

In practice doesn't the carry trade effect make the currency with higher interest rate also appreciate? Assuming positive real rates. Because it's common to see latin central banks raise rates to control inflation but also exchange rate instabilities.

[jkskhksinger]

Hi Ryan, great stuff. on 28th August, how is the fed rate 3.81%, please can you share where i can find the rata data, thanks !