Question

26. Interest Rate Parity Implications for Russia If the U.S. interest rate is close to zero, while the interest rate of Russia is very high, what would interest rate parity suggest about the forward rate of the Russian ruble? Explain.

Answer 1

Hello Sir/ Mam

Interest rate parity says that the currency for which the interest rates are lower, should be trading at a forward premium by the difference of rates.

As here, U.S.rates are close to 0, and Russian interest rates are very high, hence, Russian ruble will be at forward discount against USD by the rate approximately equal to the Russian Interest Rates.

I hope this solves your doubt.

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