FRED Federal Reserve Ecomonic Data a database of more than 3

FRED (Federal Reserve Ecomonic Data) a database of more than 3000 U.S. economic time series contains historical data on foreign exchange rates. The following data show the foreign exchange rate for the United States and China (http://research.stlouisfed.org/fred2/). The units for Rate are the number of Chinese yuan to one U.S. Dollar.

a) Construct a time series plot. Does a linear trend appear to be present?
b) Use Excel Solver to find the parameters for the line that minimizes MSE for this time series
c) Use the trend equation to forecast the exchange rate for August 2008.
d) Would you feel comfortable using the trend equation for to forecast the exchange rate for December 2008?

Year

Month

Rate

2007

October

7.5019

2007

November

7.4210

2007

December

7.3682

2008

January

7.2405

2008

February

7.1644

2008

March

7.0722

2008

April

6.9997

2008

May

6.9725

2008

June

6.8993

2008

July

6.8355

Solution