Q3. Exchange rates and macroeconomic policy in the open economy (a) For this question, read the following Speech from the former Governor or the RBA, Glenn Stevens, regarding the float of the Australian dollar: https://www.rba.gov.au/speeches/2013/sp- gov-211113.html [Note: you do not need to obtain external sources, just answer the questions based on this article]. i. From a monetary perspective, briefly explain the case for floating the Australian dollar? [0.25 marks] ii. Do you think the terms of trade during the 2000s eliminated the concerns/uncertainty of the float based on the exchange rate movement since 1985? [0.25 marks] iii. Do you believe the float of the Australian dollar helped the RBA in making interest rate decisions? Did it reduce interest-rate volatility and stimulate the 'real economy' [0.25 marks] iv . Since the time of the float, why did the RBA intervene? Is it convinced that intervention is the right strategy? [0.25 marks] (b) Go the FRED database and find data on monthly U.S. dollar exchange rates to the Chinese Yuan (EXCHUS), Canadian dollar (EXCAUS), and South Korean Won (EXKOUS). Set the sample period between July 2008 to July 2013 (this roughly corresponds to the pre-GFC, GFC, and pot-GFC period). Download this data into an Excel spreadsheet and do the following: i. Over the sample period (which is 5 years) use the "average", "max", "min", and "stdev" functions in Excel to calculate the average, highest, and lowest exchange rate values, as well as the standard deviation of the exchange rate to the US dollar (this is an absolute measure of the volatility of exchange rate), for each of the three exchange rates. [1.5 mark]. Note: Place your results into a Table with the three currencies along the rows and calculated values along the columns as follows: Chinese Yuan Canadian dollar South Korean won Average Mayiv. marks] Since the time of the float, why did the RBA intervene? Is it convinced that intervention is the right strategy? [0.25 marks] (b) Go the FRED database and nd data on monthly US. dollar exchange rates to the Chinese Yuan (EXCHUS), Canadian dollar (EXCAUS), and South Korean Won [EXKOUS] Set the sample period between July 2008 to July 2013 (this roughly corresponds to the pre-GFC, GFC, and pot-GFC period). Download this data into an Excel spreadsheet and do the following: Overthe sample period (which is 5 years} use the \"average", \"max", \"min", and \"stdev\" functions in Excel to calculate the average, highest, and lowest exchange rate values, as well as the standard deviation of the exchange rate to the US dollar (this is an absolute measure of the volatility of exchange rate), foreach of the three exchange rates. [1.5 mark]. Note: Place your resolts into a Table with the three Currencies along the rows and calculated values along the columns as follows: Chinese Yuan Canadian dollar South Korean won Average Max Using the maximum and minimum values of each exchange rate over the sample period, calculate the ratio of the difference between the maximum and minimum values to the average level of the exchange rate (expressed as a percentage by multiplying by 100). This value gives an indication of how tightly the exchange rate moves. Based on your results, which exchange rate has a smaller band of movement relative to the average value? [1 mark]. ii. Using the maximum and minimum values of each exchange rate over the sample period, calculate the ratio of the difference between the maximum and minimum values to the average level of the exchange rate (expressed as a percentage by multiplying by 100). This value gives an indication of how tightly the exchange rate moves. Based on your results, which exchange rate has a smaller hand of movement relative to the average value? [1 mark]. Page 401' 5 iii. Calculate the ratio of the standard deviation to the average exchange rate over the sample period (expressed as a percentage by multiplying by 100). This value gives an indication of how volatile the exchange rate is. Based on your results, which of the three currencies is the least volatile? Are the results consistent with part [ii] above? [1 mark]