If a foreign country's interest rate is similar to the U.S. rate, the forward rate premium or discount will be close to zero, meaning that the forward rate and spot rate will provide similar forecasts.

Question

Quizplus · Accepted Answer

When a foreign country's interest rate is similar to the U.S. rate, there is no significant difference in the anticipated exchange rates between the spot rate and forward rate markets. Therefore, the forward rate premium/discount should be small or near zero.

If a Foreign Country's Interest Rate Is Similar to the U.S