Why Do Spot Exchange Rates and Forward Rates Differ

question 54

Multiple Choice

Why do spot exchange rates and forward rates differ?

• A)Because forward rates reflect the expectations of the foreign exchange market about future currency movements
• B)Because of the imbalance between demand and supply for the currency in the spot exchange market
• C)Because of the volatility inherent in foreign exchange markets
• D)Because forward rates,by definition,should sell either at a premium or a discount

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