How easy is it to forecast the Australian/U.S. dollar exchange rate? The data file iron contains monthly data on the iron ore price and the exchange rate from 2010M1 to 2016M12. In the questions that follow, use a \(5 \%\) significance level for all hypothesis tests.

a. Plot the two series. Do they appear to move together?

b. Is the exchange rate stationary or nonstationary? What model best reflects the relationship between current and past exchange rates?

c. Is the iron ore price stationary or nonstationary?

d. Financial commentators have suggested that, given Australia's dependence on iron ore exports, its exchange rate follows movements in the iron ore price. Is there evidence to suggest these financial commentators are correct?

e. Can the iron ore price be used to help forecast the exchange rate?