A forward rate
A)gravitates toward the expected future exchange rate for a particular currency.
B)diverges away from the expected future exchange rate for a particular currency.
C)is affected by inflation and interest rate differentials between two countries.
D)Both a and c are correct.

Question

Quizplus · Accepted Answer

A forward rate is a financial contract that involves locking in an exchange rate for a future date. The forward rate is influenced by inflation and interest rate differentials between two countries, which are factors that affect the expected future exchange rate for a particular currency. As a result, the forward rate gravitates towards the expected future exchange rate, making both options A and C correct.

A Forward Rate