If the Forward Rate Is Expected to Be an Unbiased

question 13

Multiple Choice

If the forward rate is expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then:​

• A) ​covered interest arbitrage is feasible.
• B) ​the international Fisher effect (IFE) is supported.
• C) ​the international Fisher effect (IFE) is refuted.
• D) ​the average absolute error from forecasting would equal zero.

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Definitions:

Behavioral Economics

A field of economics that studies how psychological, social, cognitive, and emotional factors affect the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation.

Availability Heuristic

An intellectual simplification employed when the examples readily thought of are used to assess a particular matter, notion, method, or judgement.

Time Inconsistency

is a situation where a person's preferences change over time, such that what they choose today may differ from what they will choose in the future, often leading to decision-making challenges.

Present

The current moment or period in time.