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YouTube T3-21: Interest rate parity applies cost of carry model

Nicole Seaman

Director of FRM Operations
Staff member
Interest rate parity applies the cost of carry (COC) model to enforce an equilibrium (indifference) between two choices: 1. translate the 1,000 EURs immediately at the spot FX rate, and subsequently grow them at the USD risk-free rate for two years; or 2. hold the 1,000 EURs, grow them at the EUR riskfree rate, and translate at the end of two years per the forward FX rate (i.e., exchange the EUR for USD)

David's XLS is here: https://trtl.bz/2uIVV9R

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