Question 13.17

13.17 U.S.-Canadian exchange rates.

Refer to Exercise 13.15.

canrate

  1. Obtain a histogram and Normal quantile plot of the daily changes in exchange rates. What do you conclude?
  2. Test the daily changes against the null hypothesis that the underlying mean change is 0. What do you conclude? What is the implication of your conclusion in terms of the exchange rate series having drift or not?
  3. Given your conclusion in part (b), what would be your forecast in general for the next day’s exchange rate?
  4. If today’s exchange rate is equal to 1, what would be the 95% prediction interval for tomorrow’s exchange rate?

13.17

(a) The histogram and Normal quantile plot show a Normal distribution with one high potential outlier. (b) . The underlying mean is not significantly different from 0. We have no evidence of a drift in the exchange rate series. (c) The best forecast is a naive forecast, or today’s rate. (d) (0.9927, 1.0078).