Uncovered Interest Rate Parity (UIP)

Uncovered Interest Rate theory says that the expected appreciation (or depreciation) of a particular currency is nullified by lower (or higher) interest.


In the given example of covered interest rate, the other method that Yahoo Inc. can implement is to invest the money in dollars and change it for Euro at the time of payment after one month.

This method is known as uncovered, as the risk of exchange rate fluctuation is imminent in such transactions.

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