If interest rate parity prevails, what is the return from a hedged for

If interest rate parity prevails, what is the return from a hedged foreign currency investment?

What will be an ideal response?

ANSWER

Answer: A hedged foreign currency investment sells the known foreign currency return in the forward market at the time of the investment. This eliminates exposure to foreign exchange risk, but it also eliminates possible gains from appreciation of the foreign currency. By interest rate parity, we know that the domestic currency return from the hedged foreign currency investment is just the domestic currency money market return.