Firms that believe the forward rate is an unbiased predictor of the future spot rate will prefer borrowing the foreign currency.

Question

Quizplus · Accepted Answer

Firms that believe the forward rate is an unbiased predictor of the future spot rate might not necessarily prefer borrowing in the foreign currency, as their decision would also depend on other factors such as interest rate differentials, their expectations of future currency movements, and their risk management strategies.

Firms That Believe the Forward Rate Is an Unbiased Predictor