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:

WPA

The Works Progress Administration, an American New Deal agency, providing jobs and income to the unemployed during the Great Depression by carrying out public works projects.

Americans

Citizens or natives of the United States of America, a diverse population with a wide range of cultural, ethnic, and racial backgrounds.

1935-1942

A period marked by significant global events including the latter years of the Great Depression, the build-up to World War II, and early years of the conflict.

Social Security Act

A law enacted in 1935 in the United States to create a system of transfer payments in which younger, working people support older, retired people.