If the Exchange Rate Follows a Random Walk

question 61

Multiple Choice

If the exchange rate follows a random walk

• A)the future exchange rate is unpredictable.
• B)the future exchange rate is expected to be the same as the current exchange rate,S_t = E(S_t + 1).
• C)the best predictor of future exchange rates is the forward rate F_t = E(S_t + 1/I_t).
• D)the future exchange rate is expected to be the same as the current exchange rate,S_t = E(S_t + 1),and the best predictor of future exchange rates is the forward rate F_t = E(S_t + 1/I_t).

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