The difference between forward and spot exchange rates reflects expectations by investors about future exchange rate movements.

Question

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The forward exchange rate is the rate at which two currencies can be exchanged on a specific future date. It reflects the market's expectations of future exchange rate movements. The spot exchange rate, on the other hand, is the rate at which two currencies can be exchanged for immediate delivery. It reflects the current market conditions and supply and demand factors. Therefore, the difference between forward and spot exchange rates can provide information about investors' expectations for future exchange rate movements.

The Difference Between Forward and Spot Exchange Rates Reflects Expectations