Question:
The following table contains Japanese yen to dollar
exchange rate data that were published in issues of Risk magazine. Each period is three months. Spot rate is the actual spot
exchange rate prevailing at the start of a period. Fonoard rate is the three-month forward
exchange rate prevailing at the start of a period. Forecast rate is the forecast made by the Industrial Bank of Japan at the start of a period for the spot
exchange rate at the start of the next period (that is, the forecast for three months later). To illustrate, at the beginning of the third period, the actual spot
exchange rate was 152.750, the three-month ahead forward rate was 153.600, and the rate forecast by the Industrial Bank for the start of the fourth period was 151. The actual spot
exchange rate that was realized at the start of the fourth period was 149.400. Based on the root mean squared error, was the Industrial Bank of Japan able to outperform the forward rate? (Do the calculations for the percentage forecast error.) You are also given that the spot rate realized three months after the last forecast given in the table was 139.25.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Transcribed Image Text:
Forecast Rate 140 Forward Rate t Rate 143.164 144.300 152.750 149.400 129.600 129.500 Period Spo 142.511 143.968 153.600 149.400 129.700 129.800 151 143 130 131 4 6