The forward exchange rate:
A) is the rate at which foreign exchange dealers are willing to commit today to buying or selling a currency in the future.
B) is a synonymous term for the nominal exchange rate.
C) is the same as the spot rate.
D) is always above the spot rate since it carries greater risk.

Question

Quizplus · Accepted Answer

The forward exchange rate refers to the rate at which foreign exchange dealers are willing to commit today to buying or selling a currency in the future. It is different from the spot rate, which refers to the current exchange rate at which a currency can be bought or sold. The forward exchange rate can be higher or lower than the current spot rate depending on various factors such as interest rate differentials, market expectations, and risk. Therefore, option B and C are incorrect, and option D is also incorrect as the forward rate does not always carry greater risk than the spot rate.

The Forward Exchange Rate