Which One of the Following Would Be an Answer to Why

question 1

Multiple Choice

Which one of the following would be an answer to why the forward exchange rate is an unbiased predictor of the future spot rate?

• A) The forward rate is greater than the conditional expectation of the future spot rate.
• B) The forward rate equals than the conditional expectation of the future spot rate.
• C) The forward rate is less than the conditional expectation of the future spot rate.
• D) The current spot rate is greater than the conditional expectation of the future spot rate.

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Definitions:

Effective Annual Rate

Effective annual rate (EAR) is the actual return on an investment or real cost of a loan, considering compounding interest, expressed as an annual rate.

EAR

Effective Annual Rate, a measure of interest that accounts for compounding over a year, providing a more accurate depiction of financial product returns.

APR

Annual Percentage Rate; a comprehensive measure of the cost of borrowing on an annual basis, including interest and other fees.

Monthly-Compounded

Monthly-Compounded refers to the process of applying interest on an investment or loan on a monthly basis, where each month's interest is added to the principal.