If you were attempting to forecast the forward exchange rate for a par

If you were attempting to forecast the forward exchange rate for a particular horizon such as 90 days, how would the forward exchange rate be an unbiased predictor of the future spot exchange rate?

What will be an ideal response?

ANSWER

Answer: If the forward exchange rate for 90 days is an unbiased predictor of the future spot rate, the forward rate is equal to the expected future spot rate. While there will be forecast errors that may be large, there will not be systematic errors on one side or the other. Therefore, the expected forward market return is zero.