It is now time to take a look at some of the evidence on how spot and forward exchange rates behave in relation to each other and to international interest rate differentials. Figure 1 shows the spot and 90-day forward prices of the Canadian dollar in terms of the U.S. dollar from 1974 onward. Notice that the spot and forward exchange rates are so close together that the difference between them hardly ever shows up on the chart. The same close relationship holds for the spot and forward exchange rates between most currencies.