Hello I need assistance answering these 2 multiple choice qu

Hello,

I need assistance answering these 2 multiple choice questions.

Questions 4 Question5of6 4. 5. Gamma Corporation has ineurred large losses over the last ten years due to exchange rate fluctuations of the Egyptian pound (EGP), even though the company has used a market based forecast based on the forward rate. Consequently, management believes its forecasts to be biased. The following regression model was estimated to determine if the forecasts 6. over the last ten years were biased o and a-1.3. Thus, Gamma has where St is the spot rate of the pound in year t and Ft- is the forward rate of the pound in year t-?. Regression results reveal coefficient of ao reason to believe that its past forecasts have O a. Overestimated O b. Correctly estimated O c. Underestimated realized spot rate. d. None of these choices are correct.

Solution

5)(c) underestimated

Thus, Gamma has reason to believe that its past forecasts have underestimated the realized spot rate.

6)(c) yen;6.19%
SOLUTION: Absolute forecast error for the Australian dollar = (|.60 -.55|)/.55 = 9.09%

Absolute forecast error for the Japanese yen = (|.0067 - .0069|)/.0069 = 2.90%

Therefore, Huge Corp. has estimated the Japanese yen more accurately by approximately 6.19%.