Work out interest rate parity instantly with clear inputs, formula shown and shareable results.
Covered interest rate parity says a forward exchange rate must offset the interest differential, otherwise borrowing in the cheap currency and lending in the dear one would be a riskless profit. The currency with the higher rate trades at a forward discount.
Covered parity
F = S × (1 + r_d·t) / (1 + r_f·t)
Its extra interest has to be given back somewhere, and the forward price is where the market takes it.
Covered parity holds closely in liquid markets. Uncovered parity, which predicts spot moves, does not hold reliably.