The prevailing one year risk free interest rate in Argentina is higher than in the U S and will continue to be higher over time Sycamore Co believes the international Fisher effect (IFE) can be used to derive the best forecast of the peso 's exchange rate movement over time However, you believe tha...

Based on the IFE Sycamore will expect the spot rate ...

The prevailing one-year risk-free interest rate in Argentina is higher than in the U.S. and will continue

Question:

The prevailing one-year risk-free interest rate in Argentina is higher than in the U.S. and will continue to be higher over time. Sycamore Co. believes the international (IFE) can be used to derive the best forecast of the peso's movement over time. However, you believe that the prevailing spot rate is the best forecast of the future spot rate. Based on your opinion, will Sycamore Co. typically overestimate the future spot rate, underestimate the future spot rate, or create an unbiased forecast (similar chance of overestimating or underestimating the future spot rate) of the Argentine peso? Briefly explain.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Fisher Effect
The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher Effect states that the real interest rate equals the nominal interest...