In looking at the foreign exchange rates in the Wall Street Journal you notice the U.S. dollar-euro spot rate is 1.085€/U.S.$ and the six-month forward rate is 1.098€/$. What does this imply?

What will be an ideal response?


This implies that people expect the dollar is going to appreciate relative to the euro over the next six months. The spot rate is the current exchange rate, the six-month forward rate is the price at which a foreign exchange dealer will agree to sell euros for six months from now. This implies that dealers expect the price of euros to be lower six months hence.

Economics

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