A Way to Prevent Confusion of Interest Rate Parity Formula

It is easy to mess up the denominator and numerator in the interest rate parity formula. Here is a good way to prevent any confusion:

1. Make all exchange rates to direct quote: DC/FC 2. Then remember the interest rate parity

Sport rate/ Forward Rate = Domestic interest rate / Foreign interest rate

See, all the “D”s are numerators, and all the F’s are denominators (including Forward rate) in DIRECT Quote (and director quote is D/F also)!

I think this should help! Forget about “counter, base” etc…