If 6-month USD/CAD forward rates are quoted at 40/45, which of the following statements is correct?
A) USD rates are higher than CAD rates in the 6-month
B) CAD rates are higher than USD rates in the 6-month
C) There is a positive USD yield curve
D) There is not enough information to decide

Question

Quizplus · Accepted Answer

The forward rate is the exchange rate that will be used to settle a currency transaction at a future date. In this case, the 6-month USD/CAD forward rate is quoted at 40/45, which means that the market expects the CAD to appreciate against the USD in the next 6 months. The bid rate of 40 indicates the price at which someone can sell USD and buy CAD, while the ask rate of 45 indicates the price at which someone can sell CAD and buy USD. Therefore, CAD rates are higher than USD rates in the 6-month period.

If 6-Month USD/CAD Forward Rates Are Quoted at 40/45, Which