Forward exchange rate can be viewed as the expected future spot exchange rate conditional on all relevant

information being available. The forward exchange rate is an unbiased predictor of the future spot rate.

$(I_t|)$

$S_{t+1}$ is the future spot rate when the forward contract matures

It denotes the set of information currently available $($money supply, interest rates, trade balances etc$)$

$(I_t|)$

Two things are noteworthy from the following equation

"Expectation" plays a key role in exchange rate determination $($that is$,$ when people "expect" the

exchange rate to go up in the future, it goes up now$).$

Exchange rate behavior will be driven by news events.