Leila Corp $S_{t}=a_{0}+a_{1} F_{t}-1+\mu t$ ,
Where St Is the Spot Rate of the the Forecasts

question 11

Multiple Choice

Leila Corp. used the following regression model to determine if the forecasts over the last ten years were biased:
$S_{t}=a_{0}+a_{1} F_{t}-1+\mu t$ ,
where St 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 the above

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