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This paper examines the opportunity cost of applying simple averages in formulating the Department of Defense (DoD) budget for foreign exchange rates. Using out-of-sample…
This paper examines the opportunity cost of applying simple averages in formulating the Department of Defense (DoD) budget for foreign exchange rates. Using out-of-sample validation, we evaluate the status quo of a center-weighted average against a Random Walk model, ARIMA, forward rates, futures contracts, and a private firm's forecasts over two time periods extending from Fiscal Year (FY) 1991 to FY 2014. The results strongly indicate that four of the alternative methods outperform the status quo over the shorter time period, and three methods for both time periods. Furthermore, a non-parametric comparison of the median error demonstrates statistical similarities between the four alternative methods over the short term. Overall, the paper recommends using the futures option prices to decrease forecast error by 3.23% and avoiding a $34 million opportunity cost.
Vinegar, vin aigre or soured wine is a name that suggests the nature and origin of the substance which is the subject of this note. In France the name is applied to the substance that results from the acetous fermentation of wine. The name has at least the merit of accuracy. The term vinegar has, however, been extended in this country to denote the product obtained by the acetous fermentation of a malt liquor and in the United States of America to mean the substance resulting from the acetous fermentation of cider. In general it may be said that certain kinds of vegetable matter may be made to yield a vinegar by this process. The Census of Production under the common heading “ vinegar and acetic acid ” states that in 1924 the output of these substances, in this country, was 14,200,000 gallons of a value of a little over a million pounds sterling; in 1930 the corresponding figures were 14,600,000 gallons and £950,000; in 1935, 17,100,000 gallons and £790,000. It may be observed that vinegar and acetic acid are not by any means the same thing. Vinegar made by acetous fermentation contains about six per cent. or slightly under that amount of acetic acid as a main and essential constituent, but other substances are present that give it a characteristic bouquet. But whether vinegar be made from malt, wine, cider, or similar substances it is a palatable and wholesome condiment and preservative. It is the result of a biological as distinguished from a chemical process, and we suggest that the term vinegar be limited to the product resulting from the former and not from the latter if it be intended for use in the household as an element in the food supply. The Food Inspectors Handbook, VI Edition, 1913, p. 300, tells us that commercial vinegar is a more or less impure acetic acid. The different varieties according to their source being malt, wine, cider, beet, sugar, and wood vinegars. We cannot think that “ impure acetic acid ” is a particularly happy definition of the term vinegar. It is surely the “ impurities ” the result of secondary reactions that give the characteristic flavour and palatability to vinegar that serve to distinguish it from a merely dilute solution of acetic acid. In the same way whisky might be defined as impure alcohol, but no one, as far as we know; has ever seriously suggested that a dilute solution of absolute alcohol would be a satisfactory substitute for whisky. similarly we suggest that wood vinegar—derived as it is from the distillation of various kinds of wood—is in its origin a purely chemical product and in no sense a biological product. It would follow that if the term vinegar be restricted, as we suggest it ought to be, to the product of biological action the term wood vinegar though well known and often used is really meaningless. The Food Industries' Manual, 1945, written for the guidance of food manufacturers, describes artificial vinegar—made by diluting acetic acid with water and colouring the solution with caramel—as a very poor substitute for the genuine product. “ Artificial vinegar ” it says “is raw in taste and completely lacking in the fine bouquet of characteristic brewed vinegar.” The Extra Pharmacopœia says that vinegar is “also made by diluting acetic acid and colouring with burnt sugar.” The reference however, presumably refers to the use of this kind of “ vinegar ” in pharmacy—vinegar and brown paper for instance—and not as an ingredient in foods.