Abstract
The purpose of this assignment is to analyse whether the Covered Interest Rate Parity (CIRP) holds in the relationship between two actual currencies. I decided to focus on the euro and the dollar because it is the financial instrument the most active and the most used in the world. Since the euro has been introduce in 1999 its value has fluctuated vis a vis the dollar. At the beginning it has lost some of its value, then it appreciated and now its value is widely above the one in 1999. €uro has reached its peak vis a vis the dollar in November 2007 at USD $1.45/1€. Ups and downs of the exchange rate have coincided with variations of the interest rates between investments in the Euro zone and in the US. CIRP links these two variables and when it holds, investments made in two different countries should have the same value at the end of the period.
