Uncovered and covered interest rate parity

CFA Level II Economics
#1

Hi ,

I’ve been having problem in differentiating between UNCOVERED and COVERED interest parity.

Can any one please explain in simple terms for me?

Many thanks

#2

They are basicly the same formula wise except covered uses F rate and uncovered uses expected S. Covered holds b/c it is bound by arbitrage b/c all the imputs trade in the market. uncovered is not bound b/c expected future spot is not traded. hope that helps

#3

There are good flow diagrams in wikipedia to help you remember.

#4

Thanks guys