If this lower than the riskfree rate in a foreign country, a foreign currency future will
A) have a price equal to the current spot price.
B) be priced at less than the current spot price.
C) not be traded in the U.S.
D) have a positive carry cost.

Question

Quizplus · Accepted Answer

If the risk-free rate in a foreign country is lower than the domestic risk-free rate, then the foreign currency future will be priced at less than the current spot price. This is because investors can earn a higher return by investing in the domestic risk-free asset rather than the foreign risk-free asset, causing demand for the foreign currency to decrease and its future price to decrease as well. Therefore, option B is the correct answer.

If This Lower Than the Riskfree Rate in a Foreign