For example:
The spot exchange rate of USD/RMB is 6.25, the current 1 year forward exchange rate is 6.32 and the theoretical one-year forward exchange rate is 6.40.
Show:
1, the implied dollar interest rate is higher than the market nominal dollar interest rate, or the implied RMB interest rate is lower than the dollar interest rate.
2. The forward exchange rate of USD/RMB is lower than the theoretical forward exchange rate, indicating that the market is bearish on USD and bullish on RMB for a long time.
The reasonable operation is to sell dollars. Buy RMB.