I know I am missing a fundamental point, but In reading 18 schweser book2 page 76 question 5 reads: The spot rate on the NZD = USD:NZD=1.4286 and the 180 day forward rate USD:NZD = 1.3899 this difference means A. Interest rates must be lower in the US than NZ B. (correct) Interest rates must be lower in the US than NZ C. the NZD is expected to depreciate and the dollar is expected to appreciate i know I am missing something fundamental, but how was this answer arrived at?
forward usd:nzd = spot usd:nzd* (1+rusd)/(1+rnzd) since forward is lower 1+rusd/1+rnzd < 1 so rusd < rnzd