The forward exchange rate is an unbiased predictor of the future spot exchange rate when both uncovered interest rate parity (UIRP) and covered interest rate parity (CIRP) hold.

Explanation:

• Covered Interest Rate Parity (CIRP): Forward rate = Spot rate × (1 + domestic interest rate) / (1 + foreign interest rate)
• Uncovered Interest Rate Parity (UIRP): Expected future spot rate = Spot rate × (1 + domestic interest rate) / (1 + foreign interest rate)

When both conditions hold:

• Forward rate = Expected future spot rate
• This makes the forward rate an unbiased predictor

In practice, forward rates often contain risk premiums and are not perfect predictors due to market inefficiencies and risk aversion.