help Question 7 Question 8 XYZ, Inc. uses fundamental forecasting to forecast mo

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Question 7 Question 8 XYZ, Inc. uses fundamental forecasting to forecast movements in the Japanese Yen (UPY). The company uses a two-factor regression model with the two factors being inflation differential and income differential. XYZ's application of regression analysis, using historical data, yields the following regression coefficients Time Running Hide Atenpt due Mar 7 at 10pm 40 Minutes, 1 Second The constant term is -0.03: the coefficient for the inflation term is 1.1: and the coefficient for income is 0.93 Assume that the most recent quarterly percentage change in inflation is 6% and that the income growth differential is 4%. Based on fundamental forecasting which of the following statements is most accurate? O For a 1% change in the inflation differential, the JPY is expected to depreciate by 1.1% For a 6% change in the inflation differential, the JPY is expected to appreciate by 1.1% For a 6% change in the inflation differential, the JPY is expected to depreciate by O 1.1% For a 1% change in the inflation differential, the JPY is expected to appreciate by 1.1%

Explanation / Answer

The regression analysis output for the above stated problem should be of the form,

J = 1.1i + 0.93I-0.03

where i=% inflation differential, I=% income differential, J=% change in JPY with their respective coefficients as given in the problem.

now the above equation means that

1) If i changes by 1%, J increase by 1.1%

2)If I changes by 1%, J increase by 0.93%.

thus from the above, we can say that the answer for the solution is option 4.

explanation:

for i = i+1,(i increased by 1%)

J'=1.1(i+1)+0.93I-0.03=1.1i+1.1 + 0.93I-0.03=(1.1i + 0.93I-0.03)+1.1=J+1.1

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