Given an Efficient Foreign Exchange Market, the Spot Rate Is

question 11

True/False

Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

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Definitions:

Accounting Profits

The net income for a company calculated by subtracting total expenses from total revenues, according to standard accounting practices.

Explicit Costs

Direct, out-of-pocket payments for inputs or resources used in the production of goods or services.

Uninsurable Risk

An eventuality for which the frequency or magnitude of potential losses is unpredictable or unknowable. Insurance companies are not willing to sell insurance against such risks.

Consumer Tastes

The preferences and inclinations of consumers regarding different products and services, which can shift over time affecting market demand.