Basics of Exchange Rates (a). Visit the website of the Board of Governors of the Federal Reserve System at hhp://www.federalreserve.gov/. Click on "Economic Research and Data" and then "Statistics: Release and Historical Data." Download the H.10 release Foreign Exchange rates (weekly data available). What has happened to the value of the U.S. dollar relative to the Canadian dollar, Japanese yen, and Danish krone since June 25, 2010? Using the information above, what has happened to the value of U.S. dollar relative to the British pound and the euro? Note: The H.10 release quotes these exchange rates as U.S. dollars per unit of foreign currency in line with long-standing market convention. (b). Go to the website for Federal Reserve Economic Data (FRED): http://research.stlouisfed.org/fred2/. Locate the monthly exchange rate data for the following: (1) Canada (dollar), 1980-present (2) China (yuan), 1999-2004, 2005-2009, 2009-2010, and 2010-present (3) Mexico (peso), 1993-1995 and 1995-present (4) Thailand (baht), 1986-1997 and 1997-present (5) Venezuela (bolivar), 2003-present Look at the graphs and make your own judgement as to whether each currency was fixed (peg or band), crawling (peg or band), or float relative to the U.S. dollar during each time frame given. 2 2. The U.S. Current Deficits Note: To answer the following questions, you may find that it would be helpful (although it's not required) to read articles provided in the reading list, such as Bernanke (2005), Yang (2012), Roubini and Setser (2004), and Mann (2002). (a). Make a chart of the U.S. current account deficit, both in absolute $ value and as a share of GDP from 1990 to present. Find the most recent estimate of the U.S. current account deficit for the next two quarters (Note: depending on the availability of actual data. If actual data is available up to the third quarter of 2016, you should look for the estimate for 2016Q4 and 2017Q1). (b). For the same sample period (1990-present), chart the evolution of the net foreign assets of the U.S. (NIIP) and decompose the total NIPP in the part that is the net stock of foreign direct investment from the part that is the rest (portfolio, banks, other forms of debt). (c). Discuss the evolution of the U.S current account deficit and net foreign assets: how much of the evolution of the deficit (as a share of GDP) is due to changes in private savings, public savings (fiscal deficits) and investment rate (all as a share of GDP) and how much has the role of different factors changed over time? (d). Based on this analysis, are the U.S. current account and external debt sustainable? Does the U.S. differ or not from emerging markets or not and why? (e). How likely are the risks of a crash of the U.S. dollar triggered by foreign investors reduced willingness to lend to the U.S. and accumulate U.S. assets? (f). Will the U.S. dollar strengthen or weaken in the next 2 years and relative to which currencies and why? Data on Savings, Investment and Current Account (on a quarterly and annual basis) are available from the Bureau of Economic Analysis; see: http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=137 Data on nominal GDP - to take ratios of savings, investment and current account as a share of GDP - are also available from the BEA. Note that the way BEA presents the data on the current account is slightly confusing; instead of referring to the current account, it refers to Net Lending or Net Borrowing (implicitly from/to the rest of the world). So, the item representing such Net Lending or Net Borrowing is our definition current account. For example in BEA Table 5.1 under the tab Savings and Investment by Sector http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=137 the Row 1 gives you gross savings. Row 21 gives you gross investment. Row 35 gives you the current account deficit, where the current account deficit is the item that is defined (as I explained above) as Net Lending or Net Borrowing (Row 35). Row 42 gives you the statistical discrepancy that should be added to Saving to have an item that is Savings (net of the statistical discrepancy). I just need help i dont know how to do this