Definitions for "Interest parity"
Two currencies are in interest parity when the difference in their interest rates is equalized by the forward exchange margins. For instance, if the operative interest rate in Japan is 2% and in the US 6%, a forward premium of 4% for the Japanese Yen against dollar would bring about interest parity.
Equality of returns on otherwise identical financial assets denominated in different currencies. May be uncovered, with returns including expected changes in exchange rates, or covered, with returns including the forward premium or discount. Also called interest rate parity.
One currency is in interest parity with another when the difference in the interest rates is equalized by the forward exchange margins. For instance, if the operative interest rate in Japan is 3% and in the UK 6%, a forward premium of 3% for the Japanese Yen against sterling would bring about interest parity.