If a foreign country's interest rate is similar to the U.S. rate, the forward rate premium or discount will be close to zero, meaning that the forward rate and spot rate will provide similar forecasts.

Question

Quizplus · Accepted Answer

When the interest rates in two countries are similar, the forward market expects no change in exchange rates over time. This means that the forward rate premium or discount will be close to zero, and the forward rate and spot rate will provide similar forecasts.

If a Foreign Country's Interest Rate Is Similar to the U.S