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Why Should Interest Rate Parity Mean That the Forward Premium

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Why should interest rate parity mean that the forward premium should equal the interest rate differential between countries?


Definitions:

Short-term Memory Capacity

The amount of information that can be held in the short-term memory for a brief period, typically regarded as lasting 20 to 30 seconds.

Chunking

A cognitive strategy for organizing information into meaningful groups or chunks to enhance memory and recall.

Parallel Search

A search for information in which several stores or slots of information are simultaneously examined to match to the target.

Primacy Effect

The tendency to remember items at the beginning of a list better than those in the middle or end.

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