The Uncovered Interest Rate Parity - A Literature Review

EPRA Journal of Multidisciplinary Research, Vol. 2, Issue 10, pp. 10-13, 2016

14 Pages Posted: 31 Oct 2016

Date Written: October 29, 2016

Abstract

Interest rates and exchange rates are considered to be one of the most discussed areas in International Finance. When considering the main theories that explore on these two variables, Uncovered Interest Rate Parity (UIP) states that the interest rate differential is an unbiased predictor of the spot exchange rate changes. The impact on investors’ attitude is that they would be indifferent towards the returns on domestic and foreign assets denominated in same currency thereby eliminating any short term arbitrage profits. Studies of this nature are of significance in the case of Sri Lanka, as a country which is trade dependent accurate forecasts of exchange rates would be of immense importance. Hence this study focuses on reviewing what is revealed by literature so far and what is not.

Keywords: Interest Rates, Exchange Rates, Uncovered Interest Rate Parity (UIP)

JEL Classification: F00, F31

Suggested Citation

Kaushala, Hiruni and Rajapakse, R. P. C. R., The Uncovered Interest Rate Parity - A Literature Review (October 29, 2016). EPRA Journal of Multidisciplinary Research, Vol. 2, Issue 10, pp. 10-13, 2016, Available at SSRN: https://ssrn.com/abstract=2861203

Hiruni Kaushala

Independent ( email )

No Address Available
United States

R. P. C. R. Rajapakse (Contact Author)

University of Sri Jayewardenepura ( email )

Nugegoda
Gandodawila
Gangodawila, Nugegoda 10250
Sri Lanka

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