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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Definitions:

Political Affiliations

The political party or movement with which an individual or group is most closely associated or aligned.

Civil Service System

The civil service system is a merit-based recruitment and employment method for government officials and employees, intended to promote fairness and efficiency in public service.

Merit-Based

A system or process where decisions or selections are made based on individual performance, skills, and abilities rather than other factors such as nepotism or patronage.

Nonpolitical Employment

Positions within the government or public sector that are filled based on merit and qualifications rather than political affiliation, ensuring neutrality and efficiency in public service.