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1. Estimate a regression equation for the foreign subsidiary in China.

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.9796
R Square 0.959616
Adjusted R 0.958698
Square
Standard 0.003074
Error
Observatio 46
ns

ANOVA
df SS MS F Significan
ce F
Regressio 1 0.00987 0.0098 1045.5 2.65E-32
n 9 79 46
Residual 44 0.00041 9.45E-
6 06
Total 45 0.01029
5

Coefficie Standar t Stat P-value Lower Upper Lower Upper


nts d Error 95% 95% 95.0% 95.0%
Intercept -0.0533 0.02639 - 0.0495 -0.10649 - - -
2.0197 29 0.0001 0.1064 0.0001
2 1 9 1
X Variable 1.067953 0.03302 32.334 2.65E- 1.00139 1.1345 1.0013 1.1345
1 8 9 32 17 9 17

Based on regression statistic above, the significant value which is P-value is 0.04952 while for the
t-value is -2.01972. The regression result proposed in each path of direction with a significant p-
value which is less than 0.05 or ˂0.05 while t-value more than 1.96 or ˃ 1.96 for showing the
result to be accepted while for significant value which more than 0.05 or ˃0.05 and t-value less
than ˂1.96, there might be caused the result to be rejected. For the result above, which showed
the p-value is less than 0.05 it showed the foreign subsidiary in China are significantly affected
with the changing in the value of the foreign exchange but since the t-value is more than 1.96
but in a negative way, this showed this coefficient is having a negative relationship.
2. Forecast the logarithm value of U.S. dollar in Chinese yuan (CNY/US$) for each month.

SPOT
FOR FOR FORECAST St: (-
EXCHANGE
CURRENT PREVIOUS 0.0533+1.0680)*
RATE,
PERIOD PERIOD log St-1
CNY/USD
Year
Currency CNY/USD Log St LOG St-1

2013-03 6.2154 0.793469083 0.794648351 0.891039195


2013-04 6.1861 0.791416936 0.793469083 0.889716883
2013-05 6.1416 0.788281528 0.791416936 0.887415811
2013-06 6.1342 0.787757932 0.788281528 0.883900077
2013-07 6.1343 0.787765011 0.787757932 0.883312969
2013-08 6.1213 0.786843664 0.787765011 0.883320907
2013-09 6.1198 0.786737229 0.786843664 0.882287801
2013-10 6.1032 0.785557602 0.786737229 0.882168455
2013-11 6.0929 0.78482405 0.785557602 0.880845739
2013-12 6.0738 0.783460487 0.78482405 0.880023208
2014-01 6.0509 0.781819976 0.783460487 0.878494244
2014-02 6.0816 0.784017852 0.781819976 0.876654739
2014-03 6.1729 0.790489242 0.784017852 0.879119218
2014-04 6.2246 0.794111448 0.790489242 0.886375587
2014-05 6.238 0.79504537 0.794111448 0.890437167
2014-06 6.2306 0.794529871 0.79504537 0.891484374
2014-07 6.1984 0.792279599 0.794529871 0.890906344
2014-08 6.1541 0.789164549 0.792279599 0.888383114
2014-09 6.1382 0.788041035 0.789164549 0.884890209
2014-10 6.1251 0.787113184 0.788041035 0.883630412
2014-11 6.1249 0.787099002 0.787113184 0.882590013
2014-12 6.1886 0.791592413 0.787099002 0.882574111
2015-01 6.2181 0.793657702 0.791592413 0.887612573
2015-02 6.2518 0.796005076 0.793657702 0.889928381
2015-03 6.2386 0.795087141 0.796005076 0.892560492
2015-04 6.201 0.792461731 0.795087141 0.891531211
2015-05 6.2035 0.792636787 0.792461731 0.888587339
2015-06 6.2052 0.792755784 0.792636787 0.888783629
2015-07 6.2085 0.792986685 0.792755784 0.88891706
2015-08 6.3383 0.801972791 0.792986685 0.88917597
2015-09 6.3676 0.803975774 0.801972791 0.899252091
2015-10 6.3505 0.80280792 0.803975774 0.901498035
2015-11 6.364 0.803730171 0.80280792 0.900188521
2015-12 6.4491 0.809499111 0.803730171 0.901222641
2016-01 6.5726 0.817737202 0.809499111 0.907691353
2016-02 6.5501 0.81624793 0.817737202 0.916928725
2016-03 6.5027 0.813093718 0.81624793 0.915258804
2016-04 6.4754 0.811266601 0.813093718 0.911721986
2016-05 6.5259 0.814640415 0.811266601 0.90967324
2016-06 6.5892 0.81883269 0.814640415 0.913456297
2016-07 6.6771 0.824587881 0.81883269 0.918157095
2016-08 6.6466 0.822599543 0.824587881 0.92461039
2016-09 6.6702 0.824138856 0.822599543 0.922380868
2016-10 6.7303 0.828034423 0.824138856 0.924106899
2016-11 6.8402 0.8350688 0.828034423 0.928474999
2016-12 6.9198 0.840093542 0.8350688 0.936362646

3. Based on your forecast in (2), do you think the market-based forecast will predict
appreciation, depreciation, or no change in the value of U.S. dollar? Verify your conclusion.

CNY/USD
7.00

6.80
Currency per USD

6.60

6.40

6.20

6.00

5.80
2016-01
2013-03
2013-05
2013-07
2013-09
2013-11
2014-01
2014-03
2014-05
2014-07
2014-09
2014-11
2015-01
2015-03
2015-05
2015-07
2015-09
2015-11

2016-03
2016-05
2016-07
2016-09
2016-11

Based on forecast value, there are depreciation in the value of CNY per USD. One of the
reason in the depreciating in the value of CNY per USD is for keep the currency remain
competitive and allowing the exporters to purchase the good from China at a cheaper
price. This is supported by an article from Financial Times which stated the sharp
depreciation in Chinese Yuan started from year 2014 is probably due to the China’s
strategy in boost their export (Harding & Noble, 2014). However, there are also some
analyst explain that the China’s decision on weaken the currency is not due to boosting
the export instead it is for improving the domestic liquidity during the stress time within
the rising of financial system (Harding & Noble, 2014). Furthermore, the depreciation of
Chinese Yuan also is due to the changing in the policy by the central bank of China that
makes the bank now can expand the criteria used to calculate the daily fix which this
policy can let the currency value being determined at every morning and it is also are
believed can give the relaxation of controls (Inman, 2015).

4. Determine the forecast error (measured as the absolute forecast error as a percentage of
the realized value for each month) for the value of U.S. dollar in Chinese yuan (CNY/US$)
for each month.

Year ABSOLUTE
ERROR:
(Forecasted
value -Realized
value)/Realized
Value

2013-03 0.872148478
2013-04 0.87173355
2013-05 0.871138313
2013-06 0.871493996
2013-07 0.871581447
2013-08 0.871307564
2013-09 0.871426572
2013-10 0.871094306
2013-11 0.871069999
2013-12 0.870785332
2014-01 0.87052166
2014-02 0.871445018
2014-03 0.872990353
2014-04 0.873005616
2014-05 0.872697748
2014-06 0.87239666
2014-07 0.871816941
2014-08 0.871259876
2014-09 0.871433881
2014-10 0.87134234
2014-11 0.871489627
2014-12 0.872814691
2015-01 0.872695452
2015-02 0.873051329
2015-03 0.872406457
2015-04 0.871780819
2015-05 0.872255705
2015-06 0.872262492
2015-07 0.872311221
2015-08 0.874889689
2015-09 0.874054151
2015-10 0.87339961
2015-11 0.873851678
2015-12 0.875373281
2016-01 0.876837308
2016-02 0.875156532
2016-03 0.874475536
2016-04 0.874433438
2016-05 0.875685101
2016-06 0.876367326
2016-07 0.877367017
2016-08 0.875938392
2016-09 0.876675431
2016-10 0.877547976
2016-11 0.878945875
2016-12 0.87932183

The absolute error is the difference between the measured or inferred value of a quantity
and its actual value. Based on above table, the lowest value of absolute error is during
January 2014 with the error value 0.87052166 while the highest value of absolute error
is at December 2016 with the error value of 0.87932183.

5. Based on your estimation in (4), have your forecasts improved in recent years?

Based on my estimation in the question 4, the forecasted is decline for the recent year
with the large gap different on the different between the measured value and the actual
value in recent year compared to the early years. The lowest value of error is from the
early year such as in year 2014 meanwhile the large value of error comes from the recent
year which is year 2016. The value of the error also might be influence by the external
factors such as economic factors that makes the error gap become bigger which makes
the forecasts become decline for the recent years.

6. Determine the mean absolute forecast error as a percentage of the realized value for the
value of U.S. dollar in Hong Kong Dollar (HKD/US$) over all months.
The mean absolute forecast error as a percentage of the realized value for the value of
U.S. dollar in Hong Kong Dollar (HKD/US$) over all months can be calculated as follows:

∑𝑋
𝑀𝑒𝑎𝑛 =
𝑛
The n value for this sample is 46 and the ∑X is the sum of the absolute error from March
2013 until December 2016. The mean for the absolute forecast error for overall month
is 0.873349513.