Forward and spot exchange rates
A) are necessarily equal.
B) do not move closely together.
C) are always such that the forward exchange rate is higher.
D) move closely together and are equal on the value date.
E) are unrelated to the value date.

Question

Quizplus · Accepted Answer

Forward and spot exchange rates move closely together and are equal on the value date. This is because the difference between the two rates reflects the interest rate differential between the two currencies, and this differential is largely priced in by the market at the time of the transaction. Therefore, the two rates tend to converge as the value date approaches, and are ultimately equal on that date. Choices A, B, C, and E are incorrect.

Forward and Spot Exchange Rates