If interest rates are higher in Japan than in the United States, the cost of a yen per U.S. dollar in the spot market will be higher than in the forward market.

Question

Quizplus · Accepted Answer

When interest rates are higher in Japan than in the United States, there is a greater demand for yen in the forward market, as investors seek to take advantage of the higher interest rates. This increased demand for yen in the forward market drives up the cost of a yen per U.S. dollar in the spot market.

If Interest Rates Are Higher in Japan Than in the United