Compare forecasts to the forward rates for the same maturity

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1. Find the 90-day interest rates from the Financial Times website for the dollar, yen, euro, and pound. Are the yield differentials on these currencies consistent with the forward rates reported in the Wall Street Journal? What might account for any differences?

2. Examine forecasts from www.oanda.com for the pound, yen, and euro.

a. Which of these currencies are forecast to appreciate and which to depreciate?

b. Compare these forecasts to the forward rates for the same maturity. Are the predicted exchange rates greater or less than the corresponding forward rates?

c. Compare these forecasts to the actual exchange rates. How accurate were these forecasts?

d. If you had followed these forecasts (by buying forward when the forecasted exchange rate exceeded the forward rate and selling forward when it was below the forward rate), would you have made or lost money?

3. How have forward premiums and discounts relative to the dollar changed over annual intervals during the past five years for the Japanese yen, British pound, and euro? Use beginning-of-year data.

Reference no: EM131278458

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