Interest rate differential (IRD) represents the difference in interest rates between two similar interest-bearing currencies in the foreign exchange market. It plays a crucial role in currency valuation and influences capital flows between countries. Traders and investors closely monitor the IRD to identify potential arbitrage opportunities and speculate on currency movements. Changes in the interest rate differential can impact the relative attractiveness of different currencies and affect exchange rates. By analyzing the IRD, market participants can gain insights into interest rate dynamics and make informed decisions regarding currency trading and investments.
