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:

Consumer Price Index

A gauge that calculates the mean variation in time of the prices urban consumers pay for a selection of consumer products and services.

Real Rate of Return

The annual percentage return realized on an investment, adjusted for changes in price due to inflation or other external effects.

Portfolio Value

The total worth of all the financial investments held by an individual or institution.

Compounded Quarterly

This refers to the process of applying interest to an initial amount of money (principal) four times a year, at the end of each quarter.