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Go to the St. Louis Federal Reserve FRED database, and find data on the monthly U.S. dollar exchange rates to the Chinese yuan, Canadian dollar, and South Korean won. Download the data onto a spreadsheet.

a) Over the most recent five-year period of data available, use the average, max, min, and stdev 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), for each of the three exchange rates.

b) 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). This value gives an indication of how tightly the exchange rate moves. Based on your results, which of the three currencies is most likely to peg its currency to the U.S. dollar? How does this currency compare with the other two?

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c) 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). This value gives an indication of how volatile the exchange rate is. Based on your results, which of the three currencies is mostly likely to be pegged to the U.S. dollar? How does this currency compare with the other two?

 
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