General Studies · Foreign Exchange Rate Theory
According to the interest rate parity theory, which of the following scenarios explains why the euro forward exchange rate against the dollar is trading at a premium (fewer euros per dollar in the future)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The supply of dollars is expected to decrease in the near future
- 2The euro inflation rate is higher than the dollar inflation rate
- 3The government of the euro country has been selling euros from its reserves
- 4The euro nominal interest rate is lower than the dollar nominal interest rate✓
Correct answer
The euro nominal interest rate is lower than the dollar nominal interest rate
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