If the Forward Rate Was Expected to Be an Unbiased

question 66

Multiple Choice

If the forward rate was expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then:

• A) covered interest arbitrage is feasible.
• B) the international Fisher effect (IFE) is supported.
• C) the international Fisher effect (IFE) is refuted.
• D) the average absolute error from forecasting would equal zero.

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Definitions:

Simultaneously

Simultaneously means occurring, operating, or done at the same time.

Inverse Relationship

A relationship between two variables in which an increase in the value of one variable leads to a decrease in the value of the other variable, and vice versa.

Type I Error

The mistaken dismissal of a correct null hypothesis, referred to as a "false positive."

Type II Error

A statistical mistake made by failing to reject a false null hypothesis, also known as a false negative.