Leila Corp $\mu$ _t,
​
Where S_t Is the Spot Rate of the the Forecasts

question 8

Multiple Choice

Leila Corp. used the following regression model to determine if the forecasts over the last ten years were biased: ​
S_t = a₀ + a₁F_{t - 1} + $\mu$ _t,
​
Where S_t is the spot rate of the yen in year t and F_{t - 1} is the forward rate of the yen in year t - 1. Regression results reveal coefficients of a₀ = 0 and a₁ = .30. Thus, Leila Corp. has reason to believe that its past forecasts have ____ the realized spot rate.

• A) overestimated
• B) underestimated
• C) correctly estimated
• D) None of these are correct.

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Definitions:

Linear Function

A mathematical function that produces a graph of a straight line and is defined by an equation of the first degree.

Polynomial Function

A mathematical expression consisting of variables, coefficients, and non-negative integer exponents, summed together.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating its sensitivity to price changes.

Revenue Models

Financial frameworks that outline how a business or project generates earnings through its operations and sales.