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%. Under the unbiased expectations theory, what must today's three-year spot rate be? Suppose the three-year spot rate is actually 3.75%, how could you take advantage of this? Explain.
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%. Under the unbiased expectations theory, what must today's three-year spot rate be? Suppose the three-year spot rate is actually 3.75%, how could you take advantage of this? Explain.
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
Problem 6BIC
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