In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of

A. domestic rates

B. forward and spot exchange rates

C. forward rate

D. spot rates

Answer: Option B

Solution(By Examveda Team)

In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of forward and spot exchange rates. A spot rate is a contracted price for a transaction that is taking place immediately (it is the price on the spot). A forward rate, on the other hand, is the settlement price of a transaction that will not take place until a predetermined date in the future; it is a forward-looking price.