Chapter 21, Problem 2DAP

(a)

To determine

Go to the St. Louis Federal Reserve databased, and find data on the monthly U.S dollar exchange rate to the Chinese yuan (EXCHUS), the Canadian dollar (EXCAUS) and the South Korean won (EXKOUS).

For the most recent 5-year period of data available, use the average, max, min, and standard deviation functions in Excel to calculate the average, highest, and lowest exchange rate values, as well as the standard deviation of the exchange rate to the dollar (this is an absolute measure of the volatility of the exchange rate)

(b)

To determine

Using the maximum and minimum values of each exchange rate over the last five years, calculate the ratio of the difference between the maximum and minimum values to the average level of the exchange rate (expressed as a percentage by multiplying by 100). Based on the results, which of the three countries is most likely to peg its currency to the US dollar? How does this country’s currency compare with the other two?

(c)

To determine

Calculate the ratio of the standard deviation to the average exchange rate over the last five years (expressed as a percentage by multiplying by 100). Based on your results, which of the three currencies is most likely to be pegged to the US dollar? How does this currency compare with the other two?