Question: Problem 5.18. It is sometimes argued that a forward exchange rate is an unbiased predictor of future exchange rates. Under what circumstances is this

an unbiased predictor of future exchange rates. Under what circumstances is this

Problem 5.18. It is sometimes argued that a forward exchange rate is an unbiased predictor of future exchange rates. Under what circumstances is this so? From the discussion in Section 5.14 of the text, the forward exchange rate is an unbiased predictor of the future exchange rate when the exchange rate has no systematic risk. To have no systematic risk the exchange rate must be uncorrelated with the return on the market.

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