Uncovered and covered interest rate parity

Hi ,

I’ve been having problem in differentiating between UNCOVERED and COVERED interest parity.

Can any one please explain in simple terms for me?

Many thanks

They are basicly the same formula wise except covered uses F rate and uncovered uses expected S. Covered holds b/c it is bound by arbitrage b/c all the imputs trade in the market. uncovered is not bound b/c expected future spot is not traded. hope that helps

There are good flow diagrams in wikipedia to help you remember.

Thanks guys