The phrase "stronger currency" implies a forward premium. Given a euro-U.S. dollar exchange rate of $1.45/euro, which of the following values for the forward rate shows the strongest dollar?
A)1.55
B)1.65
C)1.35
D)1.25

Question

Quizplus · Accepted Answer

A stronger dollar implies a lower euro-U.S. dollar exchange rate. Therefore, the forward rate that shows the strongest dollar would be the one with the lowest number of euros per U.S. dollar. Among the given options, the forward rate of 1.25 euros per U.S. dollar (or $0.80/euro) shows the strongest dollar.

The Phrase "Stronger Currency" Implies a Forward Premium