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Uncovered Interest Rate Parity Formula

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Expected Future Spot Rate is the anticipated exchange rate between two currencies at a specified future point in time. Check FAQs

ES t+1 = e o \cdot (\frac{1 + r d}{1 + r f})

ES_t+1 - Expected Future Spot Rate?e_o - Current Spot Exchange Rate?r_d - Domestic Interest Rate?r_f - Foreign Interest Rate?

Uncovered Interest Rate Parity Example

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Here is how the Uncovered Interest Rate Parity equation looks like with Values.

Here is how the Uncovered Interest Rate Parity equation looks like with Units.

Here is how the Uncovered Interest Rate Parity equation looks like.

237.5 = 150 \cdot (\frac{1 + 0.9}{1 + 0.2})

237.5 = 150 \cdot (\frac{1 + 0.9}{1 + 0.2})

237.5 = 150 \cdot (\frac{1 + 0.9}{1 + 0.2})

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Uncovered Interest Rate Parity Solution

Follow our step by step solution on how to calculate Uncovered Interest Rate Parity?

FIRST Step Consider the formula

ES t+1 = e o \cdot (\frac{1 + r d}{1 + r f})

Next Step Substitute values of Variables

∴

ES t+1 = 150 \cdot (\frac{1 + 0.9}{1 + 0.2})

Next Step Prepare to Evaluate

∴

ES t+1 = 150 \cdot (\frac{1 + 0.9}{1 + 0.2})

LAST Step Evaluate

∴

ES t+1 = 237.5

Uncovered Interest Rate Parity Formula Elements

Variables

Expected Future Spot Rate

Expected Future Spot Rate is the anticipated exchange rate between two currencies at a specified future point in time.

Symbol: ES_t+1

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Future Spot Rate

Current Spot Exchange Rate

Current Spot Exchange Rate is the current exchange rate between two currencies.

Symbol: e_o

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Current Spot Exchange Rate

Domestic Interest Rate

Domestic Interest Rate refers to the interest rate applicable to financial instruments within a particular country.

Symbol: r_d

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Domestic Interest Rate

Foreign Interest Rate

Foreign Interest Rate refers to the prevailing interest rates in a foreign country.

Symbol: r_f

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Foreign Interest Rate

Other formulas in International Finance category

Go Balance of Financial Account

BOF = NDI + NPI + A + E

Go International Fisher Effect using Interest Rates

ΔE = (\frac{r d - r f}{1 + r f})

Go International Fischer Effect using Spot Rates

ΔE = (\frac{e o}{e t}) - 1

Go Covered Interest Rate Parity

F = (e o) \cdot (\frac{1 + r f}{1 + r d})

How to Evaluate Uncovered Interest Rate Parity?

Uncovered Interest Rate Parity evaluator uses Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate)) to evaluate the Expected Future Spot Rate, The Uncovered Interest Rate Parity is a financial theory that postulates that the difference in the nominal interest rates between two countries equals the relative changes in the foreign exchange rate over the same time period. Expected Future Spot Rate is denoted by ES_t+1 symbol.

How to evaluate Uncovered Interest Rate Parity using this online evaluator? To use this online evaluator for Uncovered Interest Rate Parity, enter Current Spot Exchange Rate (e_o), Domestic Interest Rate (r_d) & Foreign Interest Rate (r_f) and hit the calculate button.

FAQs on Uncovered Interest Rate Parity

What is the formula to find Uncovered Interest Rate Parity?

The formula of Uncovered Interest Rate Parity is expressed as Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate)). Here is an example- 237.5 = 150*((1+0.9)/(1+0.2)).

How to calculate Uncovered Interest Rate Parity?

With Current Spot Exchange Rate (e_o), Domestic Interest Rate (r_d) & Foreign Interest Rate (r_f) we can find Uncovered Interest Rate Parity using the formula - Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate)).

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Uncovered Interest Rate Parity Formula

Uncovered Interest Rate Parity Example

Uncovered Interest Rate Parity Solution

Uncovered Interest Rate Parity Formula Elements

Other formulas in International Finance category

How to Evaluate Uncovered Interest Rate Parity?

FAQs on Uncovered Interest Rate Parity

Variable Name