Question 1. Assume that the forward rate and the spot rate of the Mexican peso are usually similar at a given point in time. Assume that the peso has depreciated consistently and substantially over the last three years. Would the forward rate have been biased over this period? If so, would it typically have overestimated or underestimated the future spot rate of the peso (in dollars)? Explain.

Question 2. FORECASTING THE EURO Cooper, Inc., a U.S.-based MNC, periodically obtains euros to purchase German products. It assesses U.S. and German trade patterns and inflation rates to develop a fundamental forecast for the euro. How could Cooper potentially improve its method of fundamental forecasting as applied to the euro?

Question 3. INTERPRETING AN UNBIASED FORWARD RATE Assume that the forward rate is an unbiased but not necessarily accurate forecast of the future exchange rate of the yen over the next several years. Based on this information, do you think Raven Co. should hedge its remittance of expected Japanese yen profits to the U.S. parent by selling yen forward contracts? Why would this strategy be advantageous? Under what conditions would this strategy backfire?