Question

In: Finance

If the euro is selling for $1.45 in the spot market and $1.28 in the three-month...

If the euro is selling for $1.45 in the spot market and $1.28 in the three-month forward market, which of the following is true?

Multiple Choice

  • The dollar is selling at a premium relative to the euro.

  • The forward market is out of equilibrium.

  • The spot market is out of equilibrium.

  • The euro is expected to depreciate in value.

  • The euro is selling at a premium relative to the dollar.

Solutions

Expert Solution

At spot exchange rate a euro can buy 1.45 USD but in 3 months forward market, a euro can buy only 1.28 USD. From this we can say that euro is depreciated in value.

Hence, correct option is “The euro is expected to depreciate in value.”


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