Explain the Impact of a High Risk-Free Rate on the Cost of a Forward Contract

A high risk-free interest rate increases the cost of a long forward contract, meaning the forward price will be higher. The forward price is calculated as the spot price plus the cost of carry, discounted at the risk-free rate.

A higher risk-free rate increases the financing cost of holding the underlying asset until the contract's maturity. Conversely, for a short forward contract, the higher rate increases the interest earned on the proceeds from the hypothetical short sale, also contributing to a higher forward price.