Casullo Financial Services Ya-Ling Chuang (Ambrosia) Udayan Shah Scott Holtorf Supradipta Datta

Casullo Financial Services Exchange Rate Projections For Nike Inc.

Casullo Financial Services Four Models: The Purchase Power Parity Model (PPP) The Monetary (Asset) Approach Forward Exchange Rate Model Ad-hoc Model

Casullo Financial Services The PPP Model SFt+1 = SFt * [ 1 + sFt+1] MAE 0f ε = SFt+1 – St+1 In –sample: sFt= Id,t – If,t where Id,t+1 = CPId,t+1/CPId,t SFt = St

Casullo Financial Services The PPP Model SFt+1 = SFt * [ 1+ sFt+1] out-of-sample: Regress the equation It+1 = α0 + α1(It) + εt sFt+1 = Id,t+1 – If,t+1

Casullo Financial Services The Monetary (Asset) Approach SFt+1 = SFt * [ 1+ sFt+1] MAE 0f ε = SFt+1 – St+1 In –sample: st,T = yf,T – yd,T +mSd,T – mSf,T SFt = St

Casullo Financial Services The Monetary (Asset) Approach SFt+1 = SFt * [ 1+ sFt+1] MAE of ε = SFt+1 – St+1 out-of-sample: After Regression Analysis sFt+1 = α0 + α1(yf,t – yd,t) + α2(md,t – mf,t)

Casullo Financial Services Expectation Hypothesis SFt+1 = SFt * [1 + sFt] MAE of ε = SFt – St in-sample: sFt = (id,t – if,t) * T/360 SFt = St

Casullo Financial Services Expectation Hypothesis SFt+1 = SFt * [1 + sFt] MAE of ε = SFt – St out-of-sample: sFt = (id,t – if,t) * T/360 Use of random walk in estimating (id,t – if,t)

Casullo Financial Services Ad-hoc Model SFt+1 = SFt * [1 + sFt+1] MAE of ε = SFt – St in-sample: sFt = α + ß1(Id,t – If,t) + ß2 [(id,t – if,t) * T/360] + ß3 (yd,t – yf,t) + εt SFt = St

Casullo Financial Services Ad-hoc Model SFt+1 = SFt * [1 + sFt+1] MAE of ε = SFt – St out-of-sample: Random Walk used in estimating (Id,t – If,t), (id,t – if,t) and (yd,t – yf,t).

Casullo Financial Services USD/GBP In Sample MAE Out of Sample MAE PPP 0.0666 1.6459 MAA 0.0952 0.0348 FWD EX 0.0665 AD HOC 0.0606 0.1426 Random Walk 0.0630 0.0298 RSQ t-stats 0.0851 -0.39, -2.29, -0.79

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Casullo Financial Services USD/DEM In Sample MAE Out of Sample MAE PPP 0.1295 0.2032 MAA 0.0330 0.0276 FWD EX 0.0241 0.1102 AD HOC 0.0228 0.1158 Random Walk 0.0234 0.0181 RSQ t-stats 0.0464 1.31, -1.57, .034

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Casullo Financial Services USD/JPY In Sample MAE Out of Sample MAE PPP 0.0019 0.0016 MAA 0.0004 0.0005 FWD EX 0.0003 AD HOC Random Walk RSQ t-stats 0.1645 -.133, -3.28, 1.48

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Casullo Financial Services USD/MXP In Sample MAE Out of Sample MAE PPP 2.8719 0.0437 MAA 1.3334 0.0114 FWD EX 0.4085 0.0380 AD HOC 0.3431 0.0816 Random Walk 0.5828 0.0019 RSQ t-stats 0.4839 2.97, .97, -.08

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Casullo Financial Services

Casullo Financial Services USD/KRW In Sample MAE Out of Sample MAE PPP 1.69171E-4 2.0495E-4 MAA 1.2164E-4 5.9246E-5 FWD EX 7.700E-5 1.1752E-4 AD HOC 3.786E-5 Random Walk 3.824E-5 2.198E-5 RSQ t-stats 0.4187 3.48, 1.80, .84

Casullo Financial Services

Casullo Financial Services GBP DEM JPY MXP KRW 1 -0.252 1.545 -0.138 0.623 3.273 2 -1.975 -1.611 -3.408 0.254 2.214 3 -0.196 0.014 0.674 -0.003 0.074

Casullo Financial Services USD/DEM In Sample MAE Out of Sample MAE PPP 0.1295 0.2032 MAA 0.0330 0.0276 FWD EX 0.0241 0.1102 AD HOC 0.0228 0.1158 Random Walk 0.0234 0.0181 RSQ t-stats 0.0464 1.31, -1.57, .034

Casullo Financial Services

Casullo Financial Services USD/JPY In Sample MAE Out of Sample MAE PPP 0.0019 0.0016 MAA 0.0004 0.0005 FWD EX 0.0003 AD HOC Random Walk RSQ t-stats 0.1645 -.133, -3.28, 1.48

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