Assume the euro is selling in the spot market for $1.10.Simultaneously,in the 3-month forward market the euro is selling for $1.12.Which one of the following statements correctly describes this situation? I.The euro is selling at a premium relative to the dollar.
II)The dollar is selling at a premium relative to the euro.
III)The dollar is selling at a discount relative to the euro.
IV)The euro is selling at a discount relative to the dollar.

Question

Quizplus · Accepted Answer

The euro is selling at a premium in the forward market compared to the spot market, indicating it is expected to be stronger or more valuable in the future relative to the dollar. Conversely, this means the dollar is selling at a discount relative to the euro, as it is expected to be weaker or less valuable in the future compared to its current value against the euro.

Assume the Euro Is Selling in the Spot Market for $1.10.Simultaneously,in