Some forecasters believe that foreign exchange markets for the major floating currencies are “efficient” and forward exchange rates are unbiased predictors of future spot exchange rates. What is meant by “unbiased predictor” in terms of how the forward rate performs in estimating future spot exchange rates?
Answer to relevant QuestionsExplain how a nominal effective exchange rate index is constructed. Define the international Fisher effect. To what extent do empirical tests confirm that the international Fisher effect exists in practice? The newspaper reports that a given June Eurodollar future settled at 93.55. What was the annual yield? How many dollars does this represent? You have the same information as in question 4 above, except that the pricing is for a European option. What is different? What is meant by the term “fundamental equilibrium path” for a currency value? What is “noise”?
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