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IRP

Shobhit Jain (CA) (4896 Points)

19 July 2016

How to calculate Interest Rate Parity?

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Ajit Hegde (CA - Final) (1367 Points)
Replied 20 July 2016

As per IRP, country with higher interest rate will have currency depreciation against the country in which int rates are low. Based on present home currency spot rate against, say $, the forward discount for future period is calculated. i.e you have to discount the rupee by taking prevailing interest rates assuming to be constant. The formula, forward rate = present rate (say 65) * [ 1 + rupee int rate / 1+ $ int rate ] can be used

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