The website of the CME Group (www.cmegroup.com), which now owns the Chicago Mercantile Exchange among others, provides information about the exchange and the futures contracts offered on the exchange. Use this website to review the historical quotes of futures contracts and to obtain a recent quote for contracts on the Japanese yen and the British pound. Then go to www.ofx.com and click on Historical Exchange Rates under Market News (or search for "historical exchange rates" in your browser). Obtain the spot exchange rate for the Japanese yen and British pound on the same date for which you have futures contract quotations. Does the Japanese yen futures price reflect a premium or a discount relative to its spot rate? Does this futures price imply appreciation or depreciation of the Japanese yen? Answer these two questions for the British pound as well. Obtain the direct exchange rate of the Canadian dollar at the beginning of each of the last seven years. Insert this information in a column on an electronic spreadsheet. (See Appendix C for help on conducting analyses with Excel.) Repeat the process to obtain the direct exchange rate of the euro. Assume that you use the spot rate to forecast the future spot rate one year ahead. Determine the forecast error (measured as the absolute forecast error as a percentage of the realized value for each year) for the Canadian dollar in each year. Then determine the mean of the annual forecast error over all years. Repeat this process for the euro. Which currency has a lower forecast error on average? Would you have expected this result? Explain.
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