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Interbank Rates
April 30, 2020
Interest Rate Parity
April 30, 2020

Interest Rate Differential

Published by TradersColo at April 30, 2020
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    In Forex, an interest rate differential (IRD) is a difference in the interest rate between two currencies in a pair for pricing purposes.

    For example, if the Australian dollar has an interest rate of 4.25%, and the U.S. dollar has an interest rate of 2%, it has a 2.25% interest rate differential.

    IRD is one of the most important components in the carry trade. A carry trade is a strategy for traders when they try to profit from the interest rate difference. If a trader is long in a currency pair, they may get profit from the rise of the currency pair.

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