# Interest Rate Parity Q

http://www.investopedia.com/articles/forex/08/interes-rate-parity.asp

Investopedia gives that F = S (1+if)/(1+id)

Schweser gives F=S (1+id)/(1+if)

I am confused what’s domestic what’s foriegn.

I remember I did some question before where domestic actually means where I invested (so foreign asset) I mean come on, can any one clear this for me?

it depends on your quote of exchange rate

if S quoted as DC/FC

let’s use F=S (1+id)/(1+if)

instead of looking at it as domestic foreign … I look at it this way:

Say you are given a USD/EUR exchange rate.

My formula translates as:

F in USD/EUR = S in USD/EUR * (1+rusd) / (1+reur)

based on this – the only difference between what investopedia & Schweser are showing F and S are FC/DC in Investopedia while it is DC/FC in Schweser.

If you remember that the domestic currency grows at the domestic risk-free rate and the foreign currency grows at the foreign risk-free rate, you’ll always do it correctly: USD grows at the USD rate, EUR grows at the EUR rate, JPY grows at the JPY rate, and so on.

Also, whenever you’re writing an exchange rate, always – _ always! _ – write both currencies: numerator and denominator; you won’t make a mistake.