Suppose the spot exchange rate is C$1.273 and the six-month forward rate is C$1.275. The U.S. dollar is selling at a ________ relative to the Canadian dollar and the U.S. dollar is expected to ________ relative to the Canadian dollar.

Question

Quizplus · Accepted Answer

The U.S. dollar is selling at a premium because the forward rate (C$1.275) is higher than the spot rate (C$1.273), indicating it costs more in the future, suggesting an expectation of appreciation relative to the Canadian dollar.

Suppose the Spot Exchange Rate Is C$1