International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 6

You were recently hired by the Doolittle Corporation corporate treasury to help oversee its expansion into Europe. Blake Francis, the CFO, wants to hire a foreign exchange forecasting company. Blake has asked you to evaluate three different companies, and he has obtained information on their past performances. Out of a total of 50 forecasts for the $/€ rate, the companies reported the number of times they correctly forecast appreciations and depreciations:
There are a total of 35 dollar appreciations (down periods) and 15 dollar depreciations (up periods) in the sample. Blake wants to know two things:
a. Can anything be said about the companies' forecasting ability with the available data
b. What additional information should Blake try to obtain in order to form a better judgment