Huge Corporation has just initiated a market-based forecast system using the forward rate as an estimate of the future spot rate of the Japanese yen (¥) and the Australian dollar (A$). Listed below are the forecasted and realized values for the last period:
$\begin{array}{llcc}
\underline{ \text { Currency }} & \underline{ \text { Forecasted Value}}&\underline{ \text {Realized Value}} \
\text { Australian dollar } &\$.60&\$.55\
\text {Japanese yen } &\$.0067&\$.0069\
\end{array}$

According to this information and using the absolute forecast error as a percentage of the realized value, the forecast of the yen by Huge Corp. is ____ the forecast of the Australian dollar.
A) more accurate than
B) less accurate than
C) more biased than
D) the same as

Question

Huge Corporation has just initiated a market-based forecast system using the forward rate as an estimate of the future spot rate of the Japanese yen (¥) and the Australian dollar (A$). Listed below are the forecasted and realized values for the last period:
$\begin{array}{llcc}
 \underline{ \text { Currency }} & \underline{ \text { Forecasted Value}}&\underline{ \text {Realized Value}}  \
 \text {  Australian dollar } &\$.60&\$.55\
 \text {Japanese yen  } &\$.0067&\$.0069\
\end{array}$

According to this information and using the absolute forecast error as a percentage of the realized value, the forecast of the yen by Huge Corp. is ____ the forecast of the Australian dollar.
A) more accurate than
B) less accurate than
C) more biased than
D) the same as

Quizplus · Accepted Answer

The absolute forecast error for the yen is $|0.0067 - 0.0069| / 0.0069 = 0.02899$ or 2.899%. For the Australian dollar, it is $|0.60 - 0.55| / 0.55 = 0.0909$ or 9.09%. The yen forecast is more accurate as it has a smaller percentage error.

Huge Corporation Has Just Initiated a Market-Based Forecast System Using