The full form of DRI is Differential Rate Of Interest

An interest rate differential (IRD) weighs the contrast in interest rates between two similar interest-bearing assets. Most often it is the difference between two interest rates.

Traders in the foreign exchange market use IRDs when pricing forward exchange rates. Based on the interest rate parity, a trader can create an expectation of the future exchange rate between two currencies and set the premium, or discount, on the current market exchange rate futures contracts.

IRDs simply measure the difference in interest rates between two securities. If one bond yields 5% and another 3%, the IRD would be 2 percentage points—or 200 basis points (bps). IRD calculations are most often used in fixed income trading, forex trading, and lending calculations.

The IRD is also a key component of the carry trade, a trading strategy that involves borrowing at a low-interest rate and investing the proceeds in an asset that provides a higher rate of return. Carry trades often consist of borrowing in a low-interest rate currency, and then converting the borrowed amount into another currency with a higher yield.