Covered interest parity definition
Covered interest parity means the proposition that the differential between forward and spot exchange rates is equal to the interest differentials. That is, the forward rate for a foreign currency exchange at time t for 1 pe- riod ahead is equivalent to the spot rate at time t, St , multiplied by one plus the foreign interest rate, if , divided by one plus the domestic interest rate, id. For- ward rates at time t for n periods, Fwdt,n , can thus be derived based on the principle of covered interest parity as