Use the data set WA04 that is posted for this assignment on Canvas. This data set includes recent monthly spot exchange rates for Poland Zloty against the U.S. dollar in sheet 2. Disregard other sheets. Revisit my lecture on Advanced FX Forecasting or research the statistical technique of autoregressive models.

1. Using one lag only and the range of data on SPOT rate for the data in sheet 2, estimate the following specification. Each month is identified on the 5th day of the month. That is the day I extracted the data for his assignment. Use regression in Excel or in any other software that you desire. Note again: You have to accurately follow this instruction, otherwise your answers will be incorrect. SR t = a0 + a1 SR t - 1 Where SR t is spot exchange rate at time t; a0 is the intercept and a1 is the slope.

2. Using the above estimated relation, forecast the outright values of Polish currency for 1 and 2 months ahead, i.e., beyond the end of the data (= for July 5 August 5).

Questions:

1. The estimated value of a0 is: 2. The estimated value of a1 is: 3. The outright forecast for 1 month ahead beyond the end of the data is: 4. The outright forecast for 2 months ahead beyond the end of the data is:

5. The above approach is: a. Also called time-series analysis b. Also called autoregressive model of degree 1 c. Is very practical in nearly most aspects of finance and other disciplines. d. All of the answers in this group are correct.

The data on excel is: