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The accuracy from forecasting with the spot rate will be better. The forward rate is higher than the spot rate (it has a premium) when the interest rate is lower. So if the forward rate is used as a forecast, it would suggest that a currency with the lower interest rate will appreciate (in accordance with the international Fisher effect). However, since money is assumed to flow where interest rates are higher, this implies that the spot rate will rise when a currency has a relatively high interest rate.

This relationship is in contrast to the IFE. Thus, a forward rate will suggest depreciation of the currencies that should appreciate (and vice versa) based on the information in the question. The spot rate as a forecast reflects a forecast of no change in the exchange rate. The forecast of no change in a currency value (when the spot rate is used as the forecast) is better than a forecast of depreciation for a currency that appreciates. The spot rate forecast results in a smaller mean absolute forecast error

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