If the forward rate is used as an indicator of the future spot rate, the spot rate is expected to appreciate or depreciate by the same amount as the forward premium or discount, respectively.

Question

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This statement is true. The forward rate is a market-determined estimate of the future spot rate, taking into account interest rate differentials between two currencies. The forward premium or discount reflects the difference between the two interest rates. If the forward premium is positive, it indicates that the market expects the spot rate to appreciate by the same amount, and if the forward discount is negative, it indicates that the market expects the spot rate to depreciate by the same amount.

If the Forward Rate Is Used as an Indicator of the Future