Answer (A) is correct . A dollar fetches fewer pounds in the forward market than in the spot market. By the same token, it takes fewer pounds to buy a dollar in the forward market than it does in the spot market. The pound is thus expected to gain purchasing power with respect to the dollar and is therefore selling at a forward premium.
Answer (B) is incorrect because The pound is trading at a premium, not a discount, with respect to the dollar.
Answer (C) is incorrect because Interest rate parity cannot be calculated without reference to the interest rates in the two countries.
Answer (D) is incorrect because Economists do not recognize “international Fisher parity.”
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