At equilibrium, the difference between foreign and domestic interest rates should correspond to the difference between which of the following?

Foreign Exchange Markets MCQs for PPSC, FPSC, NTS, and Pakistan government job tests. Select an option below, then read the explanation.

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Subject
Foreign Exchange Marketsfinance-mcqs › foreign-exchange-markets
Published
12 May 2023
Last updated
28 May 2026

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Explanation

In equilibrium, the interest rate differential between two countries is reflected in the difference between the forward exchange rate and the spot exchange rate. This relationship ensures no arbitrage opportunities exist in the foreign exchange market.

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