EECS 3101 Lecture Notes - Lecture 20: New Zealand Dollar, Mexican Peso, Australian Dollar
28 Jun 2018
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EECS 3101 Lecture 20 Notes
Introduction
Percentages movement
The magnitude of the movement tends to vary every month, although the range of
percentage movements over these months is a reasonable indicator of the range of
percentage movements in future months.
A comparison of the movements in these two currencies suggests that they move
independently of each other.
The movements in the euro are typically larger (regardless of direction) than
movements in the Canadian dollar.
This means that, from a U.S. perspective, the euro is a more volatile currency.
The standard deviation of the exchange rate movements for each currency (shown at
the bottom of the table) confirms this point.
The standard deviation should be applied to percentage movements (not to the actual
exchange rate values) when comparing volatility among currencies.
From the U.S. perspective, some currencies (such as the Australian dollar, Brazilian real,
Mexican peso, New Zealand dollar) tend to exhibit higher volatility than does the euro.
Financial managers of MNCs closely monitor the volatility of any currencies to which
they are exposed, because a more volatile currency has more potential to deviate far
from what is expected and could have a major impact on their cash flows.
Foreign exchange rate movements tend to be larger for longer time horizons.
Thus, if yearly exchange rate data were assessed then the movements would be more
volatile for each currency than what is shown here
The euro’s movements would still be more volatile than the Canadian dollar’s
movements.
If daily exchange rate movements were assessed then the movements would be less
volatile for each currency than shown here
Document Summary
The magnitude of the movement tends to vary every month, although the range of percentage movements over these months is a reasonable indicator of the range of percentage movements in future months. If daily exchange rate movements were assessed then the movements would be less volatile for each currency than shown here. The euro"s movements would still be more volatile than the canadian dollar"s movements. The movement tends to vary every month, although the range of percentage movements over these months is a reasonable indicator of the range of percentage movements in future months. A comparison of the movements in these two currencies suggests that they move independently of each other. The movements in the euro are typically larger (regardless of direction) than movements in the canadian dollar. This means that, from a u. s. perspective, the euro is a more volatile currency.
