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Question 2. As the world's economies become increasingly interdependent, various exchange rates between currencies have become important in making business decisions. For many U.S. businesses,

Question 2. As the world's economies become increasingly interdependent, various exchange rates between currencies have become important in making business decisions. For many U.S. businesses, the European Union exchange rate (in euro per U.S. dollar) is an important decision variable. Download the spreadsheet with the data on this exchange rate (EXEUR) by month for a two-year period.

Period EXEUR Period EXUR
2016 M1 0.921234 2017 M1 0.940291
M2 0.901551 M2 0.938967
M3 0.89815 M3 0.935366
M4 0.881368 M4 0.933358
M5 0.884017 M5 0.904977
M6 0.890313 M6 0.890234
M7 0.904568 M7 0.867303
M8 0.892299 M8 0.846525
M9 0.891424 M9 0.839419
M10 0.907935 M10 0.850702
M11 0.926612 M11 0.851571
M12 0.948317 M12 0.84488
The exchange rate between Euro and Dollar for a two-year period
The data is retreieved from St Louis FRED
https://fred.stlouisfed.org/series/EXJPUS
  1. Prepare a time series plot of this data series.
  2. Use the naive forecasting model to forecast EXEUR for each month from year 1 M2 through year 3 M1.
  3. Plot actual and forecast values of the series for the year 1 M1 through year 3 M1. (You will not have an actual value for year 3 M1 or a forecast value for year 1 M1)
  4. Calculate RMSE for the period from year 1 M2 through year 2 M12.

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