if the exchange rate follows a pure random walk: a)the future exchange rate is expected to...
if the exchange rate follows a pure random walk:
a)the future exchange rate is expected to be the same as the currect exchange rate,
b)the best predictor of future exchange rate is the forward rate
c)both a and b
d)neither a or b
Homework Answers
The first option a) is true.
a)as exchange rate is walking without any strong base totally on the random walk with no factor to be predicted then future exchange rate can be predicted as equal to the current one.
b) Option b is incorrect as the forward rate is determined on any strong basis of behaving the exchange rate in the future and strong factor is not available.
c) & d) similarly these option are not possible.
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