Hello! I am currently doing som exersices in the course International Finance. Currently I am struggeling with a regression problem.

The task is:

Run the following regression S+ = + ( *) + +,

We define as the spot rate at time , and we denote by the natural logarithm of the spot rate at time , such that = ln .

where + = + denotes the difference of the logarithm of the spot rate between + and . We denote by the interest rate in the domestic country, and by * the interest rate in the foreign country, both at time . Run this regression separately for different values of : 3 months, 1 year, 3 years, 5 years and 10 years.

The problem is that I do not know where to start. I have also been presented with some dataset for the quarterly spot rate of USD/JPY from 1980 and the bond rates for 3-months, 1,3,5 and 10-years from 1980 in a excel-file which I cant find a way to upload here.

My questions:

1) how do I calculate the left hand side of the regression S+ ? Do I have to enter a ln formula into the given spot rates?

2) And now assume that i know the left hand side of the regression: How do I run the regression correclty?

I am hoping for a positive response and pleas ask if anything is unclear.

Thank you!