23. FRED (Federal Reserve Economic Data), a database of more than 3000 U.S. economic time series, contains historical data on foreign exchange rates. The following data show the foreign exchange rate for the United States and China (http://research

WEB

file

ExchangeRate

Problems 229 .stlouisfed.org/fred2/). The units for Rate are the number of Chinese yuan to one U.S.

dollar.

Year Month Rate

2007 October 2007 November

2007 December

2008 January

2008 February 2008 March 2008 April 2008 May

2008 June 2008 July

7.5019 7.4210 7.3682 7.2405 7.1644 7.0722 6.9997 6.9725 6.8993 6.8355

a. Construct a time series plot. Does a linear trend appear to be present?

b. Use simple linear regression analysis to find the parameters for the line that minimizes

MSE for this time series.

c. Use the trend equation to forecast the exchange rate for August 2008.

d. Would you feel comfortable using the trend equation to forecast the exchange rate for

December 2008?