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Which one of the following statements correctly identifies risks in foreign exchange forwards?

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Which one of the following statements correctly identifies risks in foreign exchange forwards?

A.

Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are significant, and the effect of compounding is large for short periods of time.

B.

Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are small, and the effect of compounding is small for short periods of time.

C.

Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are small, and the effect of compounding is large for short periods of time.

D.

Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are significant, and the effect of compounding is small for short periods of time.

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