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If the Exchange Rate Follows a Random Walk

Question 42

Multiple Choice

If the exchange rate follows a random walk


A) the future exchange rate is unpredictable.
B) the future exchange rate is expected to be the same as the current exchange rate,St = E(St + 1) .
C) the best predictor of future exchange rates is the forward rate Ft = E(St + 1/It) .
D) the future exchange rate is expected to be the same as the current exchange rate,St = E(St + 1) ,and the best predictor of future exchange rates is the forward rate Ft = E(St + 1/It) .

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