The two versions of IRP are covered interest rate parity and uncovered interest rate parity. In simple terms, covered interest rate parity (CIP) states that any discrepancies between the expected...

The two versions of IRP are covered interest rate parity and uncovered interest rate parity. In simple terms, covered interest rate parity (CIP) states that any discrepancies between the expected exchange rate and the spot rate in the next period should be hedged (i.e., covered) by a forward contract.