Interest Rate Parity (IRP) Explained | Foreign Exchange Rates

[@RyanOConnellCFA]

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[@Alpaca1attaka]

great stuff Ryan, randomly turned this on and I learned a ton!

[@RyanOConnellCFA]

I'm glad to hear that, and thank you!

[@randallblake1213]

Great ratio of useful information per unit of time on this video! Good job.

[@RyanOConnellCFA]

Thank you Randall, I appreciate that

[@zeshannawaz7960]

Amazing video. Hats off to you!

[@RyanOConnellCFA]

Thank you! Cheers!

[@aldaanish]

I really enjoyed your video on interest rate parity. The explanation of the formula was very clear. However, I'm curious to know how capital controls can affect the relationship between interest rates and exchange rates. Could you elaborate on this point?

[@RyanOConnellCFA]

Thank you! Capital controls can disrupt the relationship between interest rates and exchange rates by limiting or restricting capital flows across borders, preventing the free arbitrage that normally enforces interest rate parity. This can lead to deviations from the expected IRP relationship.

[@aldaanish]

@@RyanOConnellCFA thanks a lot

[@RyanOConnellCFA]

@@aldaanish My pleasure!

[@ElGrandoCaymano]

Thanks, but where did you get the interest rates from? Those rates seem too low for Sep 2024.

[@jkskhksinger]

Hi Ryan, great stuff. on 28th August , how is the fed rate 3.81%, please can you share where i can find the rata data , thanks !

[@jkskhksinger]

Hi Ryan, Can you confirm which day you made this video? I am on US department treasury website looking at 1 year T bills and still cant find the rate in the last week or two

[@jkskhksinger]

I see 5.33% as at end of Aug, fed rate

[@RyanOConnellCFA]

Hey there, very astute observation. When I originally shot the video, I used 10 year rates, I realized my mistake later. The 10 year rates still got me fairly close to the answer so I didnt want to reshoot the thing based on that. But you are right, the rates I used were slightly off but still got close to the answer! In hindsight, it would have been better to use the 1 year rate

[@Csirkefoga]

Interest parity law is a rubber law. It calculates the hypothetical rate. But then there are always other factors that influence the exchange rate.

[@Abhinavjain2004]

Dear Sir, If possible, could you kindly consider creating videos on "Pricing Corporate Bonds in Python" and "Calculating ZCB (Zero-Coupon Bonds) Rates Using the Bootstrapping Method?" A detailed explanation of how to implement these concepts in Python would greatly benefit students who are looking to deepen their understanding of bond pricing and yield curve construction. It would be immensely helpful for our learning. Thank you for your time and consideration!🙏🙏

[@gustavobuquera]

In practice doesn't the carry trade effect make the currency with higher interest rate also appreciate? Assuming positive real rates. Because it's common to see latin central banks raise rates to control inflation but also exchange rate instabilities.

[@RyanOConnellCFA]

Very good point! When I touched on the no-arbitrage idea at the end, that is enforced by the carry trade. If interest rate parity gets out of line, then there is a possibility for an arbitrage profit carry-trade

[@gustavobuquera]

@@RyanOConnellCFA oh i see, thanks!

[@Ematuresco]

​​@@RyanOConnellCFAhi Ryan I've seen a few videos of yours would you be interested to share your knowledge of portfolio optimization sharp sortino and Omega ratio in the realm of the cryptocurrencies? I can give you some ideas if you like to

[@exotickhanaarif4333]

So the forward rate that you calculated here is basically the rate at which arbitrage ceases to exist

[@RyanOConnellCFA]

That is a very good way to put it