This paper develops interest rate parity in a framework that is easily implemented in Excel. The student can either be given the paper to see how the code is developed using the intuition of the interest rate parity framework or the student can be taught the interest rate parity framework and develop the Excel code as an assignment. Using either teaching method or the other exercises suggested in the paper, the student is able to understand how traders exploit violations of interest parity and become more comfortable with basic concepts, such as direct quotes and indirect quotes.
Copyright © 2004 Financial Education Association. This article first appeared in the Journal of Financial Education 30 (Fall 2004): 28-41.
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Arnold, Tom, and Bonnie Buchanan. "Interest Rate Parity In Excel." Journal of Financial Education 30 (Fall 2004): 28-41.