The Following Regression Model Was Estimated to Forecast the Value $\begin{array}{cc}\text { Probability } & \text { Possible Outcome } \\30\% & -2 \% \\40 \% & -3 \% \\30 \% & -4 \%\end{array}$

question 62

Multiple Choice

The following regression model was estimated to forecast the value of the Indian rupee (INR) :
INR_t = a₀ + a₁INTt + a₂INFt _-1 + m_t,
Where INR is the quarterly change in the rupee, INT is the real interest rate differential in period t between the U.S. and India, and INF is the inflation rate differential between the U.S. and India in the previous period. Regression results indicate coefficients of a₀ = .003; a₁ = -.5; and a₂ = .8. Assume that INFt _-1 = 2%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution:
$\begin{array}{cc}\text { Probability } & \text { Possible Outcome } \\30\% & -2 \% \\40 \% & -3 \% \\30 \% & -4 \%\end{array}$
The expected change in the Indian rupee in period t is:

• A) 3.40%.
• B) 0.40%.
• C) 3.10%.
• D) 1.70%.
• E) none of the above

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Definitions:

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials and labor.

FIFO Process Costing

An accounting method used to evaluate the cost of production, where the first items produced are assumed to be the first sold or used.

Equivalent Units

A concept in cost accounting used to calculate the units produced during a period in terms of fully completed units.

Direct Materials

Raw materials that can be directly attributed to the manufacturing process of a product.