Uncovered Interest Rate Parity Calculator

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✖Current Spot Exchange Rate is the current exchange rate between two currencies.ⓘ Current Spot Exchange Rate [e_o]			+10% -10%
✖Domestic Interest Rate refers to the interest rate applicable to financial instruments within a particular country.ⓘ Domestic Interest Rate [r_d]			+10% -10%
✖Foreign Interest Rate refers to the prevailing interest rates in a foreign country.ⓘ Foreign Interest Rate [r_f]			+10% -10%

✖Expected Future Spot Rate is the anticipated exchange rate between two currencies at a specified future point in time.ⓘ Uncovered Interest Rate Parity [ES_t+1]

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Uncovered Interest Rate Parity Solution

STEP 0: Pre-Calculation Summary

Formula Used

Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate))
ES_t+1 = e_o*((1+r_d)/(1+r_f))
This formula uses 4 Variables

Variables Used

Expected Future Spot Rate - Expected Future Spot Rate is the anticipated exchange rate between two currencies at a specified future point in time.
Current Spot Exchange Rate - Current Spot Exchange Rate is the current exchange rate between two currencies.
Domestic Interest Rate - Domestic Interest Rate refers to the interest rate applicable to financial instruments within a particular country.
Foreign Interest Rate - Foreign Interest Rate refers to the prevailing interest rates in a foreign country.

STEP 1: Convert Input(s) to Base Unit

Current Spot Exchange Rate: 150 --> No Conversion Required
Domestic Interest Rate: 0.9 --> No Conversion Required
Foreign Interest Rate: 0.2 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

ES_t+1 = e_o*((1+r_d)/(1+r_f)) --> 150*((1+0.9)/(1+0.2))

Evaluating ... ...

ES_t+1 = 237.5

STEP 3: Convert Result to Output's Unit

237.5 --> No Conversion Required

FINAL ANSWER

237.5 <-- Expected Future Spot Rate

(Calculation completed in 00.020 seconds)

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Created by Keerthika Bathula

Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad

Keerthika Bathula has created this Calculator and 100+ more calculators!

Verified by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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< International Finance Calculators

Balance of Financial Account

LaTeX Go Balance of Financial Account = Net Direct Investment+Net Portfolio Investment+Asset Funding+Errors and Omissions

Covered Interest Rate Parity

LaTeX Go Forward Exchange Rate = (Current Spot Exchange Rate)*((1+Foreign Interest Rate)/(1+Domestic Interest Rate))

International Fisher Effect using Interest Rates

LaTeX Go Change in Exchange Rate = ((Domestic Interest Rate-Foreign Interest Rate)/(1+Foreign Interest Rate))

International Fischer Effect using Spot Rates

LaTeX Go Change in Exchange Rate = (Current Spot Exchange Rate/Spot Rate in Future)-1

Uncovered Interest Rate Parity Formula

LaTeX Go

Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate))
ES_t+1 = e_o*((1+r_d)/(1+r_f))

What is Uncovered Interest Rate Parity (UIRP)?

The Uncovered Interest Rate Parity (UIRP) is a financial theory that postulates that the difference in the nominal interest rates between two countries is equal to the relative changes in the foreign exchange rate over the same time period. It is quite similar to an economic theory called the “Law of One Price (LOOP).” It is similar in the sense that UIRP also claims that the price of an identical commodity, financial security, etc. anywhere around the world should have the same price when currency exchange rates are taken into consideration, regardless of its location in the world.UIRP works by assuming that the country with the higher interest rate will experience depreciation in its domestic currency value relative to the foreign currency value with the lower interest rate.

How to Calculate Uncovered Interest Rate Parity?

Uncovered Interest Rate Parity calculator uses Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate)) to calculate 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 calculate Uncovered Interest Rate Parity using this online calculator? To use this online calculator 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. Here is how the Uncovered Interest Rate Parity calculation can be explained with given input values -> 237.5 = 150*((1+0.9)/(1+0.2)).

FAQ

What is Uncovered Interest Rate Parity?

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 and is represented as ES_t+1 = e_o*((1+r_d)/(1+r_f)) or Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate)). Current Spot Exchange Rate is the current exchange rate between two currencies, Domestic Interest Rate refers to the interest rate applicable to financial instruments within a particular country & Foreign Interest Rate refers to the prevailing interest rates in a foreign country.

How to calculate Uncovered Interest Rate Parity?

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 is calculated using Expected Future Spot Rate = Current Spot Exchange Rate*((1+Domestic Interest Rate)/(1+Foreign Interest Rate)). To calculate Uncovered Interest Rate Parity, you need Current Spot Exchange Rate (e_o), Domestic Interest Rate (r_d) & Foreign Interest Rate (r_f). With our tool, you need to enter the respective value for Current Spot Exchange Rate, Domestic Interest Rate & Foreign Interest Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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