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Journal of Management Research
Year : 2002, Volume : 2, Issue : 2
First page : ( 80) Last page : ( 86)
Print ISSN : 0972-5814.

Forward foreign exchange rates as an unbiased predictor of future spot rates: The empirical evidence

Vij Madhu, Associate Professor

Faculty of Management Studies University of Delhi, Delhi.


This paper reexamines a familiar relationship in literature: that the forward rate is an unbiased predictor of the future spot rate at one, three and six month intervals. We find that the forward rates have little power in predicting the future spot rate as some crucial information that is available with economic agents is only known at later dates and news that is only partially known at the time of the forecast becomes known only at the date of maturity. Also, a longer horizon forward rate, such as the 1-year forward exchange contract has more information about the spot exchange rate than the shorter horizon of 30 days or even 3 months.



Forward Exchange Rate, Forward Premia, Spot Rate, Unbiased Forward Rate Hypothesis, Risk Premium.


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