Economics · International Finance
Which of the following best describes the implication of a premium or discount on a forward exchange rate?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1A premium or discount is exclusively applicable to the money market and is not used in the foreign exchange market.
- 2A premium or discount only affects the spot rate and has no bearing on the future value of the currency.
- 3A premium indicates the foreign currency is expected to depreciate, while a discount indicates it is expected to appreciate.
- 4A premium indicates the foreign currency is expected to appreciate, while a discount indicates it is expected to depreciate.✓
Correct answer
A premium indicates the foreign currency is expected to appreciate, while a discount indicates it is expected to depreciate.
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