International Finance
Choose a pair of currencies to analyse. You cannot choose the Pound/Dollar combination as this will be used as an example in lectures in preparation for this assignment, but you can choose one of those and a third currency if you want.
Draw a graph of the real effective exchange rate from 1995 to the most recent data available for each of the currencies. (You can have a single graph or two separate ones)
Draw a graph of the market exchange rate and one of the real exchange rate between the two currencies for the same period (again you can have a single graph or two separate ones).
You can create your real exchange rate variable using the activity available in Blackboard for the first week of teaching, or any other method. You will need to identify the raw data you used and include it in an appendix. You can create an index variable if that helps in your comparisons.
Write an 800 (max 1000) word report. The references and appendices do not count towards the word limit.
In the report you should:
Explain what motivates your choice of currencies.
Describe the data you gathered.
Define all the exchange rates used and how they may relate to each other.
Has each currency appreciated or depreciated in the last 2 two years of data? Give details of the exact change in the value of the currencies in those two last years of data. Which of the exchange rates in your graphs should you use to answer this question? Justify your answer.
What extra information, if any, can you get by examining real exchange rates instead of nominal ones? How might that be relevant for monetary policy discussions?
Research the economic and political events that may explain the behaviour of the rates since 1995 (for example: dates of significant crises, wars, political instability and how these may help to justify the movements of the currencies).
