Gamma Corporation Has Incurred Large Losses Over the Last Ten $S_{t}=a_{0}+a_{1} F_{t-1}+µ t$

Multiple Choice

Gamma Corporation has incurred large losses over the last ten years due to exchange rate fluctuations of the Egyptian pound (EGP) ,even though the company has used a market-based forecast based on the forward rate.Consequently,management believes its forecasts to be biased.The following regression model was estimated to determine if the forecasts over the last ten years were biased:
$S_{t}=a_{0}+a_{1} F_{t-1}+µ t$
Where is the spot rate of the pound in year t and is the forward rate of the pound in year t-1.Regression results reveal coefficients of 0 and 1.3.Thus,Gamma has reason to believe that its past forecasts have ______________ the realized spot rate.
where $S_{t}$ is the spot rate of the pound in year $t$ and $F_{t-1}$ is the forward rate of the pound in year $t$ 1. Regression results reveal coefficients of $a_{0}=0$ and $a_{1}=1.3$ . Thus, Gamma has reason to believe that its past forecasts have the realized spot rate.

A) overestimated
B) underestimated
C) correctly estimated
D) none of the above