Question: (10 points) The following examines exchanges rates of four major currencies. Use STATA to answer this question.

1. Visit the FRED database, and gather data on the daily exchange rates for the following pairs of countries: Japan/US, US/euro, US/UK. Label them jpus, useur, usuk, respectively. Select the period 1/1/2006 through the last day in 2009.
2. Notice that the exchange rates are quoted inconsistently; i.e. the dollar placement in the numerator or denominator of the exchange rate fraction. When the US/euro rate rises, is the dollar getting stronger or weaker relative to the euro? When the Japan/US rate rises, is the dollar getting stronger or weaker relative to the Japanese Yen?
3. Restructure the Japan/US so that it is consistent with the other two rates. Specifically, create a new variable that is US/Japan*100. Label this series "usjp".
4. Construct a single time series graph that overlays the three exchange rates (usjp, useur, usuk) over the entire sample. Comment on major movements of the series, and provide possible rationale for these movements.
5. Compare the variability of the three series using the Coefficients of Variation.
6. Compute and comment on the correlation of the three series for the entire sample.
7. Determine if the correlation structure changed over time. Specifically, compute the
   correlation among the three series for the sub-samples 2006, 2007, 2008, and 2009.
   Describe your findings. Which correlation seems to be the least variable?
8. Some analysts are forecasting that the euro will drop to parity with the US dollar; i.e.

useur = 1. Use a histogram and z-score to discuss the likelihood of such an event.

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