The implied foreign interest rate computed using spot and forward exchange rates may be lower than the actual foreign interest rate if the foreign country has a high ________.

Question

Quizplus · Accepted Answer

The implied foreign interest rate computed using spot and forward exchange rates may be lower than the actual foreign interest rate if the foreign country has a high default risk. This is because high default risk can lead to a higher actual interest rate as lenders demand a risk premium, but this risk may not be fully reflected in the spot and forward exchange rates.

The Implied Foreign Interest Rate Computed Using Spot and Forward