Suppose interest rate in Malaysia (home country) is 5% and in United States it is 3%, whereas the spot exchange rate is 4

You have RM50,000 for one year investment.

Current exchange rate 4RM per dollar

Domestic Interest rate = 5%

Foreign Interest rate = 3%

Interest rate parity says that: Forward exchange rate = Spot exchange rate * [(1 + Domestic Interest rate) / (1 + Foreign Interest rate)] = 4 * [(1 + 0.05) / (1 + 0.03)] = 4.0777

You can buy $12,500 from RM 50,000

RM 50,000 will be 50,000 * 1.05 = 52,500 after 1 year

$12,500 will be 12,500 * 1.03 = 12,875 after 1 year. Now this 12,875 can be converted back to Malaysian currency as $12,875 * 4.0777 = RM 52,500

So, money after 1 year is same either investor invest in Dollar or Malaysian currency.