Which of the following statements is (are) FALSE?Select one or more alternatives:Studies suggest that forward exchange rates are unbiased predictors for future spot exchange rates ininternationally integrated capital markets.If arbitrageurs have sufficient capital to trade on risk-free opportunities instantaneously, we will seepersistent deviations from covered interest parity.If both uncovered interest parity hypothesis and covered interest parity hypothesis hold, we can predict whatthe spot exchange rate will be in one year from today based on today's one-year forward exchange rate.If forward exchange rates deviate from synthetic forward rates defined by covered interest rate parity, therewill be risk-free arbitrage opportunities in efficient capital markets.

The exchange rate refers to the value of the one currency converted into the other currency. The…

Answered: =) FALSE?

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International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 8QA

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Question

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Which of the following statements is (are) FALSE?
Select one or more alternatives:
Studies suggest that forward exchange rates are unbiased predictors for future spot exchange rates in
internationally integrated capital markets.
If arbitrageurs have sufficient capital to trade on risk-free opportunities instantaneously, we will see
persistent deviations from covered interest parity.
If both uncovered interest parity hypothesis and covered interest parity hypothesis hold, we can predict what
the spot exchange rate will be in one year from today based on today's one-year forward exchange rate.
If forward exchange rates deviate from synthetic forward rates defined by covered interest rate parity, there
will be risk-free arbitrage opportunities in efficient capital markets.

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