Chapter 9
Q. 9.ST.2
Consider the following information:
| Currency | 90-Day Forward Rate | Spot Rate That Occurred 90 Days Later |
| Canadian dollar | $.80 | $.82 |
| Japanese yen | $.012 | $.011 |
Assuming the forward rate was used to forecast the future spot rate, determine whether the Canadian dollar or the Japanese yen was forecasted with more accuracy, based on the absolute forecast error as a percentage of the realized value.
Step-by-Step
Verified Solution
Canadian dollar \frac{| \$ .80- \$ .82|}{ \$ .82} = 2.44%
Japanese yen \frac{|\$ .012-\$ .011|}{\$ .011} = 9.09%
The forecast error was larger for the Japanese yen.