The spot rate on the Swiss franc are SFr2.56/$ and the 180-day forward rate is SFr2.50/$. Which of the following is correct? The difference between the spot and forward rates suggested that
A) interest rates were higher in the U.S. than in Switzerland
B) the Swiss franc will rise in relation to the dollar
C) the inflation rate in Switzerland is declining
D) the Swiss franc is expected to fall in value relative to the dollar

Question

Quizplus · Accepted Answer

The forward rate is lower than the spot rate, indicating that the Swiss franc is expected to depreciate against the dollar. This suggests that interest rates are higher in the U.S. than in Switzerland, as higher interest rates in a country typically lead to a stronger currency.

The Spot Rate on the Swiss Franc Are SFr2