Interest Rate Differential FX Interview Guide
Interest rate differential FX interview guide for forward points, carry, funding, expected depreciation caveats, examples, and risk.
Candidates discussing FX carry, forwards, and currency pricing mechanics.
Rate differentials affect forwards
Interest rate differences between currencies are reflected in forward pricing under covered-interest-style assumptions and market conventions.
Carry is not the whole return
A high interest rate currency may offer positive carry, but spot moves, funding, volatility, and crash risk can dominate realized returns.
Concrete example
Borrowing a low-yielding currency to buy a higher-yielding currency earns carry only if exchange-rate movement and costs do not offset the rate differential.
Expectations complicate interpretation
Forward discounts and premia should not be read as simple forecasts. They encode rates, funding, and market pricing under assumptions.
Common mistakes
Candidates often say higher rates mean currency strength. Strong answers separate spot moves, forward pricing, and carry return components.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.