Question

Do you agree with the following statements? Please providereasons to support your answer.

“Covered interest parity is forced by arbitrage, which is notthe case for uncovered interest rate parity. If the forward rate isequal to the expected future spot rate, we say that the forwardrate is an unbiased predictor of the future spot rate: F = E(S1).In this special case, given that covered interest parity holds,uncovered interest parity would also hold (and vice versa). Inother words, if uncovered interest rate parity (and coveredinterest parity) holds, the forward rate is unbiased predictor offuture spot rate”