Forward Rates ____________ Future Short Rates Because ____________

question 13

Multiple Choice

Forward rates ____________ future short rates because ____________.

• A) are equal to; they are both extracted from yields to maturity
• B) are equal to; they are perfect forecasts
• C) differ from; they are imperfect forecasts
• D) differ from; forward rates are estimated from dealer quotes while future short rates are extracted from yields to maturity
• E) are equal to; although they are estimated from different sources, they both are used by traders to make purchase decisions

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Definitions:

Solver

A mathematical tool used to find the optimal solution to a problem by iteratively testing possible solutions.

Exponential Smoothing

A statistical technique for forecasting where recent observations are given progressively higher weights, reducing the importance of older data.

Forecast Error

The difference between the actual demand and the forecasted demand, indicating the accuracy of forecasting methods.

Moving Average

A statistical method used to analyze data points by creating a series of averages of different subsets of the full data set.