459hw03

459hw03 - year spot 1-yr forward fwd premium short or long?...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Brigham Young University Department of Economics Economics 459 - International Finance Homework #3 Due 2/1 Name: Forward Bias Puzzle 1. A regression of the percent change in the spot rate on the previous month’s forward premium yields the following: ߝ ൌߙ൅ߚ߮ ௧ିଵ ൅݁ ; ߙ ොൌ.0 , ߚ ൌെ .5 Given the following series of spot and 1-year forward exchange rates, indicate whether it would be best to take a short or long position in the foreign currency. Show the return the following month if you followed your own advice.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: year spot 1-yr forward fwd premium short or long? actual return zotneys/$ zotneys/$ % % 1990 223.68 242.42 1991 218.74 211.30 1992 219.02 211.94 1993 218.4 218.68 1994 214.88 204.73 1995 217.51 217.11 1996 218.26 224.98 1997 213.84 198.71 1998 218.76 218.33 1999 216.45 227.30 2000 214.98 215.67 2001 212.26 228.89 2002 208.42 195.70 2003 210.47 209.48 2004 206.08 208.57 2005 209.47 213.09 2006 209.74 216.39 2007 209.5 192.35 2008 214.12 214.12 2009 215.9 222.39 2010 221.87 221.98 2011 222.33 218.54...
View Full Document

Ask a homework question - tutors are online