I can’t seem to figure out an answer from a schweser mock. I’ve changed the names etc to not infringe on their material. Exam 1 AM q 47
1 Euro = 1.10, RFR=0.03, Euro RFR= 0.04. 1 year forward price is?
The answer is that the euro depreciates to below $1.10. Why is that? Shouldn’t the higher RFR cause the currency to appreciate? Or is it somehow different for forwards?