27 From Appendix 3, calculate the percentage changes

(returns on a period by period basis) between any two major currencies for a ten year period on a rolling basis. You may choose the length of the return period. Thus, if your data is monthly, say, the last day of each month then your first return would be the percentage change from 31 December to 31 January, the second return would be from the 31 January to 28 February and so on – there is a note on returns in Appendix B at the end of the book. Then calculate the variances and correlations between the returns.

a Using graphs, examine the predictability of the standard deviation of each currency and the predictability of the correlation between the two currencies.

b Examine a period where there has been a significant change in the value of the standard deviations and correlations. Look at the financial news about this time and see whether or not there is any suggestion in the press that might indicate a change in the behaviour of the currencies.