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Suppose the three-month interest rate in Europe is 2 percent, but the three-month interest rate in
the United States is 3 percent. The spot rate of dollar is 0.70 euro = $1, but three-month forward
rate is 1 euro= $1.50. Based on this information what can you predict about the foreign exchange
market?
A. Spot price of dollar may appreciate.
B. Spot price of euro may fall.
C. European interest rates will certainly fall.
D. Forward price of dollar may rise

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Suppose the three-month interest rate in Europe is 2 percent- but the (1).pdf

  • 1. Suppose the three-month interest rate in Europe is 2 percent, but the three-month interest rate in the United States is 3 percent. The spot rate of dollar is 0.70 euro = $1, but three-month forward rate is 1 euro= $1.50. Based on this information what can you predict about the foreign exchange market? A. Spot price of dollar may appreciate. B. Spot price of euro may fall. C. European interest rates will certainly fall. D. Forward price of dollar may rise