A currency is at a ________ when its interest rate is ________ than the interest rate in the other country.

Question

Quizplus · Accepted Answer

A currency is said to be at a forward premium when its interest rate is higher than the interest rate in the other country. This means that investors in the home country have an incentive to hold onto their currency and earn a higher return, causing an increase in demand for the currency and an appreciation in its value. On the other hand, a currency is said to be at a forward discount when its interest rate is lower than the interest rate in the other country, which means that investors in the home country have less of an incentive to hold onto their currency, causing a decrease in demand and a depreciation in value. Therefore, Option D is the best choice.

A Currency Is at a ________ When Its Interest Rate