Sources can be from 3-4. Please make sure the data and calculations are accurate.
Go to the St. Louis Federal Reserve FRED database, and find data on the daily dollar exchange rates https://fred.stlouisfed.org/categories/15 for the euro (DEXUSEU), British pound (DEXUSUK), and Japanese yen (DEXJPUS). Also find data on the daily three-month London Interbank Offer Rate, or LIBOR, https://fred.stlouisfed.org/categories/22 for the United States dollar (USD3M-TD156N), euro (EUR3MTD156N), British pound (GBP3MTD156N), and Japanese yen (JPY3M-TD156N). LIBOR is a measure of interest rates denominated in each country’s respective currency.
a. Calculate the difference between the LIBOR rate in the United States and the LIBOR rates in the three other countries using the data from one year ago and the most recent data available. b. Based on the changes in interest rate differentials, do you expect the dollar to depreciate or appreciate against the other currencies? Why? Explain. Be sure your response references academic journal articles (citing our course textbook is permitted) and other credible sources. c. Report the percentage change in the exchange rates over the past year. Are the results you predicted in part (b) consistent with the actual exchange rate behavior? Explain. Be sure your response references academic journal articles (citing our course textbook is permitted) and other credible sources.
Sample Solution
