👉 The interest fluid, also known as interest rate parity or forward exchange rate, is a financial concept that describes the relationship between interest rates and exchange rates in foreign currency markets. It posits that the difference in interest rates between two countries should be equal to the expected change in the exchange rate between their currencies. This means that if one country offers a higher interest rate compared to another, its currency is expected to appreciate relative to the other's currency. The interest fluid aims to eliminate arbitrage opportunities by ensuring that investors cannot profit from exchanging currencies without incurring a risk premium, thus maintaining equilibrium in the foreign exchange market.
