Editing Exchange rate (section)

===Uncovered interest rate parity model===
{{See also|Interest rate parity#Uncovered interest rate parity}}
[[Interest rate parity#Uncovered interest rate parity|Uncovered interest rate parity]] (UIRP) states that an appreciation or depreciation of one currency against another currency might be neutralized by a change in the interest rate differential. If US interest rates increase while Japanese interest rates remain unchanged then the US dollar should depreciate against the Japanese yen by an amount that prevents [[arbitrage]] (in reality the opposite, appreciation, quite frequently happens in the short-term, as explained below). The future exchange rate is reflected into the forward exchange rate stated today. In our example, the [[forward exchange rate]] of the dollar is said to be at a discount because it buys fewer Japanese yen in the forward rate than it does in the [[spot price|spot rate]]. The yen is said to be at a premium.

UIRP showed no proof of working after the 1990s. Contrary to the theory, currencies with high interest rates characteristically appreciated rather than depreciated on the reward of the containment of [[inflation]] and a higher-yielding currency.