O relationship with international fisher effect if

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oRelationship with International Fisher Effect: if IRP holds and forward rate is an unbiased predictor of future spot rate, then we can expect IFE to hold.oConclusions about the Forward RateUse of Exchange Rate Forecasts:Derivingefthat equates foreign and domestic yieldsef=1+r1+if1Using probability distributionsoSince even expert forecasts are not always accurate, it is sometimes useful to develop a probability distribution instead of relying on a single predictionInvesting Excess Cash:Diversifying cash across currencies to limit the percentage of excess cash invested in each currency.Dynamic hedging - strategy of applying a hedge when the currencies held are expected to depreciate and removing the hedge when the currencies held are expected to appreciate.

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