Question: A regression model was estimated with forward premium as the independent variable and the rate of change in the exchange rate as the dependent variable.

A regression model was estimated with forward premium as the independent variable and the rate of change in the exchange rate as the dependent variable. The variables are measured as yen per dollar. The following are the estimates.

Slope = - 1.5%

Intercept = - 3.0

Suppose we observe that the forward rate to be 1% below the spot rate what is the expected rate of change in the exchange rate?

2.0%

O 1.0%

O 0.5%

O 1.5%

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