IGNOU IBO 6 2025 - "Interest rate parity and leading/lagging are related to fo

Question

"Interest rate parity and leading/lagging are related to forward contracts".

21 Feb 2025

Answer :

Word Count : 246

Interest rate parity (IRP) and leading/lagging are crucial concepts in international business finance, especially when discussing forward contracts.

Interest rate parity refers to the relationship between the interest rates of two countries and the exchange rate between their currencies. It asserts that the difference in interest rates between two countries will be offset by the forward exchange rate, so that there is no arbitrage opportunity. Essentially, if the interest rate is higher in one country, the currency of that country will tend to depreciate in the forward market. This helps in hedging against currency risk in

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