Question 7 Suppose you gathered historical exchange rates data for $/, regressed the spot rate change (St+1-Si) on forward differential (F-S), and obtained the following estimates with their t-statistics: St+1-St+B(Ft - St) + Et+1 = = 0.07 (t = 0.80) B = 0.92 (t=-1.52) The t-statistics above for a is for the null hypothesis a=0, and for is for the null hypothesis B=1. (a) What does your estimation result imply and why? (b) In reality, what would you observe instead? What is the direct consequence of this real-world outcome in terms of currency strategies? (c) What are the potential explanations to rationalize the performance of the currency strategies you show in (b)? (d) Is there anything special about the dollar carry trade? Explain