A. domestic rates
B. forward and spot exchange rates
C. forward rate
D. spot rates
✅ The correct answer is option B.
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.
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.