Go to the Bank of England Database webpage (bank of england.co.uk/boeapps/database), locate and download the monthly average spot exchange rates between the pound and the euro for the period from January 2013 to December 2022. Complete the following tasks: (a) Let st be the monthly percentage change in S/ for month St. Calculate St as

st = St/St-1 100%

for February 2013-December 2022. Compute and report the mean (denoted by ) and standard deviation (denoted by ) of st. (b) Suppose that the current spot exchange rate is S0 = 1.1394. Construct a forecast of the spot exchange rate for next month, S1, as E0(S1) = S0 (1 + )

If the one-month forward exchange rate FF/ = 1.1368, what contract would you make to speculate in the forward market? What is your forecasted profit? (c) Assume that the conditional distribution of the monthly change in SS/ can be approximated by a normal distribution. Construct a 95% confidence interval for your forecasted profit from part (b) (i.e., the interval should cover 95% of your possible profits and losses).