The interest parity equilibrium holds when we make a loss.
forward/discount rate premium
Purchase power parity theory Interest rate parity theory International Fishers effect
In freely traded (not restricted) currency pairs, Covered Interest Parity absolutely drives the forward price. This is through arbitrage In restricted currencies it may or may not drive the forward price as it is not readily arbitragable.
Exchange rate is the rate at which one country's currency is changed for another country's currency. For example the rate at which one dollar can be changed for pound sterling or any other currency.
Covered interest parity (CIP) involves using forward contracts to hedge against exchange rate risk, ensuring that the return on investments in different currencies is equal after accounting for exchange rates. In contrast, uncovered interest parity (UIP) does not involve hedging; it posits that expected future exchange rates will adjust to offset interest rate differentials, meaning that investors take on currency risk. Essentially, CIP guarantees no arbitrage opportunities through forward contracts, while UIP relies on expectations of future currency movements without any hedging mechanism.
exchange rate
Interest rate parity between two countries taking into account the expected currency exchange und the, from the national bank determinated, current currency exchange.
Uncovered interest parity (UIP) is a financial theory stating that the expected return on a foreign investment should equal the return on a domestic investment, once adjusted for exchange rate fluctuations. In other words, the difference in interest rates between two countries should be offset by the expected change in their exchange rates. If UIP holds, investors should be indifferent between holding domestic or foreign assets, as any potential gains from higher interest rates would be neutralized by currency depreciation. However, in practice, UIP may not always hold due to factors like risk premiums and market imperfections.
because it has been tested by several researchers and they found that it does not hold
government policy intrest rate parity balance of payment changes
Monetary aggregate is a goal of money supply. Interest rate is a goal of a constant rate. To hold a specific money supply the interest rate would fluctuate. To hold a specific interest rate the money supply would fluctuate. So they can not work together.Check this out and read 11.2 through 11.4http://www.pitt.edu/~jduffy/econ280/lec1213.pdf
This question is based on the concept of interest rate parity between two countries. A country with a high inflation rate will have high interest rates as compared to other countries. this will make it's currency to depreciate against its trading partners hence the forward discount.