As the Mumbai-based currency analyst for Infosys, you have been approached by 20/20, a professional currency forecasting
Question:
As the Mumbai-based currency analyst for Infosys, you have been approached by 20/20, a professional currency forecasting firm that claims to have superior forecasting accuracy on the US$/INR. Its forecasting track record is presented in the following table, which juxtaposes the firm’s three-month forecast (BGN), the 90-day forecast, and the actual exchange rate 90 days later (EOP).
a. Using the percentage-of-correct-forecasts methodology, is the forecaster demonstrating useful forecasting expertise?
b. Using the RMSE methodology, evaluate the forecasting performance of 20/20.
c. Referring to problem 3, which forecasting service has a more legitimate claim to forecasting accuracy?
Data from problem 3
As the chief economist of the Lusitania country fund with extensive holdings in Brazil, you have been approached by Third Eye, a professional currency forecasting firm that claims to have superior forecasting accuracy on the US$/BRL. Its forecasting track record is presented in the following table, which juxtaposes the firm’s three-month forecast at the outset
(BGN), the forward 90-day forecast, and the actual exchange rate 90 days later
(end of period, EOP).
a. Using the percentage-of-correct-forecasts methodology, is the forecaster demonstrating useful forecasting expertise?
b. Using the RMSE methodology, evaluate the forecasting performance of Third Eye.
c. Should you subscribe to the proposed forecasting service given that the forward rate is always available as a free-of-charge forecast?
Step by Step Answer:
International Corporate Finance Value Creation With Currency Derivatives In Global Capital Markets
ISBN: 9781119550464
2nd Edition
Authors: Laurent L. Jacque
