If the Exchange Rate Follows a Random Walk

question 57

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)both b and c

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