In the spot market, you can buy 57 EUR for $100. In the 6-month forward market, $100 will buy 58 EUR. Thus, the dollar is selling at _____ relative to the Euro and the Euro is selling at _____ relative to the dollar.

Question

Quizplus · Accepted Answer

In the spot market, $100 buys fewer euros (57 EUR) than in the 6-month forward market (58 EUR), indicating that the dollar is expected to strengthen (or the euro to weaken) over time. Therefore, the dollar is selling at a premium (it will be worth more in the future), and the euro is selling at a discount (it will be worth less in the future).

In the Spot Market, You Can Buy 57 EUR for $100