
26 INTERNATIONAL FINANCIAL MANAGEMENT
Future Spot Rates
Foreign exchange rates are influenced by several factors, including certain macroeconomic
factors. Market participants predict future spot rates by keeping track of the various fac-
tors that influence exchange rates. Accordingly, they buy or sell currencies in the spot and
forward markets. Spot rates and forward rates are expected to move in tandem so that they
assume the same figure on the date of maturity of the forward contract. Theoretically, there-
fore, the forward rate should exactly reflect the expected future spot rate. For example, let
us assume that a depreciation of the US d