If the Forward Rate Was Expected to Be an Unbiased

question 8

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:

Budgeted Income Statement

The Budgeted Income Statement is a financial forecast that projects a company’s revenues, expenses, and net income for a specific period.

Accrual Basis

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Cash Collections

The process of gathering all cash receipts and payments, including from sales, financing, or investment activities.

Credit Customers

Customers who purchase goods or services on credit, with an agreement to pay at a later date.