medium · FRM Part 1 Financial Markets and Products
An investor sees that GBP/USD spot is 1.2500 and r_GBP = 5%, r_USD = 3%.
Over time, if the interest rates remain constant, what will happen to the 'forward points' as the maturity of the contract (T) decreases?
- The points will become less negative (move toward zero).
- The points will flip from negative to positive.
- The points will become more negative.
- The points will stay the same because the interest rate spread is constant.
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