If interest rate parity (IRP) exists, then the money market hedge will yield the same result as the options hedge.

Question

Quizplus · Accepted Answer

Interest rate parity ensures that the forward exchange rate is set such that there is no arbitrage opportunity between the interest rates of two countries. However, a money market hedge and an options hedge are different financial instruments with different risk profiles and potential outcomes, so they may not yield the same result even if IRP holds.

If Interest Rate Parity (IRP) Exists, Then the Money Market