Finance 475

Problem Set #5

 

  For this problem set, you will need to download some exchange rate data.  The best site for this is FRED (Federal Reserve Economic Data). 

            http://research.stlouisfed.org/fred2/categories/15

Choose a currency (not the Chinese Yuan…its currently pegged!) – use monthly data and download the data in an Excel spreadsheet.

1)      Plot the data…..do you see any patterns? (You may need to plot part of the data rather than all of it).

2)      Calculate a 26 Period Moving Average (Start with the last observation and calculate the average of the previous 26 periods), then copy that formula up the column.  Calculate a 9 period moving average.  Take the difference between the two – this is the MACD indicator.  Plot the MACD indicator (again, it might be easier to plot a portion of the data) and look for buy/sell points. 

3)      Calculate the latest RSI indicator.  Assume 12 periods (i.e. the past year). What does this tell you?

4)      Calculate the latest Fast Stochastic indicator (again, assume 12 periods).  What does this tell you?

5)      It is often assumed that technical traders create excessive volatility by extrapolating trends.  How would you respond to this?