The one-year spot rate is currently 4%; the one-year spot rate one year from now will be 3%; and the one-year spot rate two years from now will be 6%. According to the unbiased expectations theory, what should the three-year spot rate be today? Assume that the three-year spot rate is actually 3.75%, how could you take advantage of this? Explain.

Why is the size of the US current account deficit putting pressure on the value of the dollar to decline? How does the size of the capital account affect that pressure? Explain.

Answer rating: 100% (QA)

According to the unbiased expectations theory the threeyear spot rate can be estimated by taking the geometric average of the expected future spot rat... View the full answer