Question

12. As the world’s economy becomes increasingly interdependent, various exchange rates between currencies have become important in making business decisions. For many U.S. businesses, the Japanese exchange rate (in yen per U.S. dollar) is an important decision variable. This exchange rate (EXRJ) is shown in the following table by month for a two-year period:

(c1p12)	Period	EXRJ	Period	EXRJ
	Year 1		Year 2
	M1	127.36	M1	144.98
	M2	127.74	M2	145.69
	M3	130.55	M3	153.31
	M4	132.04	M4	158.46
	M5	137.86	M5	154.04
	M6	143.98	M6	153.70
	M7	140.42	M7	149.04
	M8	141.49	M8	147.46
	M9	145.07	M9	138.44
	M10	142.21	M10	129.59
	M11	143.53	M11	129.22
	M12	143.69	M12	133.89

Prepare a time-series plot of this series, and use the naive forecasting model to forecast EXRJ for each month from year 1 M2 (February) through year 3 M1 (January). Calculate the MAPE for the period from year 1 M2 through year 2 M12.

Answer 1

time series forecasting has been done by autoregressive 1 process. Exchange rate depend upon its first leg and a constant value. 25 is year 3 M1. MAPE is given in the figure with other statistic of forecast. Forecast value is given in the table.