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7-8. Interest Rate Parity. Define interest rate parity. What is the relationship between interest rate parity and forward rates? 7-9. Covered Interest Arbitrage. Define the terms covered interest arbitrageand uncovered interest arbitrage. What is the difference between these two transactions?
32 Eiteman/Stonehill/Moffett •Multinational Business Finance,Twelfth Edition .7-10. Forward Rate as an Unbiased Predictor of the Future Spot Rate. Some forecasters believe that foreign exchange markets for the major floating currencies are “efficient” and forward exchange rates are unbiased predictorsof future spot exchange rates. What is meant by “unbiased predictor” in terms of how the forward rate performs in estimating future spot exchange rates? .