Many companies use forward foreign exchange (FX ) contracts to help manage the risk posed by uncertain future FX rate fluctuations. This chapter covers some basics of forward FX contracts and forward FX rates. We’ll encounter another version of interest rate parity, called the covered interest rate parity (CIRP ) condition. As you will see, the CIRP condition looks deceptively similar to the traditional UIRP condition, so much so that some people confuse them, but the two relationships are conceptually very different. The UIRP condition is an economic theory, whereas the CIRP condition is a different kind of relationship, called a financial no-arbitrage condition.
Forward FX Rates
In a forward FX contract, two parties ...
Get Introduction to Foreign Exchange Rates, Second Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
