Note 39 — Chapter III · THE THEORY OF MONEY AND OF THE FOREIGN EXCHANGES

If interest rates are raised in London, the discount on forward dollars will decrease or a premium will appear. This is likely to have some influence in encouraging speculative sales of forward dollars (how much influence depends on the proportion borne by the difference between the spot and forward rates to the probable range of fluctuation of the spot rate which the speculator anticipates); and in so far as this is the case, the covering sales of spot dollars by banks will move the rate of exchange in favour of London.