There are three differences between offset interest rate parity and uncompensated interest rate parity (also called uncompensated interest rate parity):

First of all, the overview of the two is different:

1. Overview of offset interest rate parity: refers to offset in foreign exchange forward, and its economic meaning is that the forward premium rate of exchange rate is equal to the difference of interest rates between the two countries.

2. Overview of uncompensated interest rate parity: Uncompensated interest rate parity is a hypothesis about the relationship between interest rate and exchange rate.

Second, the premise of the two is different:

1, the premise of offsetting interest rate parity: the forward exchange rate increase is equal to the interest rates of two currencies.

2. The premise of no offset interest rate parity: the income of investment is the premise.

Third, the performance of the two is different:

1, which offsets the performance of interest rate parity: high interest rate currencies are discounted in the foreign exchange market, while low interest rate currencies are at a premium in the foreign exchange market.

2. Performance of uncompensated interest rate parity: The nature of investors' pursuit of profits will ensure that the market reaches equilibrium. At this time, the expected income from investing in high-risk foreign currency assets is equal to the income from investing in high-risk local currency assets.

Baidu encyclopedia-offset interest rate parity

Baidu encyclopedia-no offset interest rate parity