IRP is the fundamental equation that governs the relationship between interest rates and currency exchange rates. Its basic premise is that hedged returns from investing in different currencies should be the same, regardless of their interest rates. Essentially, arbitrage (the simultaneous purchase and sale of an asset to profit from a difference in the price) should exist in the foreign exchange markets. In other words, investors cannot lock in the current exchange rate in one currency for a lower price and then purchase another currency from a country offering a higher interest rate.