(13 of 18) Ch.21 - Uncovered interest parity

Combine common elements in the "Unbiased Forward Rates" and the "Interest Rate Parity" formulas, and derive a formula in international corporate finance known as the "Uncovered Interest Parity". It shows how the expected next year's exchange rate is determined by what it is today as well as the difference between the Foreign and the Domestic risk-free rates.