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If the Forward Exchange Rate Is Unbiased Predictor of Future

question 21

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If the forward exchange rate is unbiased predictor of future spot rates, the expected mean of the deviations from the forward rate is zero.

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Definitions:

Variable Rate

An interest rate that can change over the period of a loan or mortgage, based on an underlying benchmark interest rate or index.

Coupon Payment

The interest payment made to bondholders, typically semiannually, as a return on investment.

Coupon Bond

A bond that makes regular interest payments to its holders, named after the detachable coupons once used for interest payments.

Real Risk Free Rate

The rate of return on an investment with no risk of financial loss, after adjusting for inflation.

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