There are some problems with using an ARMA model, however, since the dataset is not very stationary. Although we see large fluctuations during some periods of time from the time plot, the exchange rate tends to move back towards the mean rate, so the null hypothesis is reasonable to make. The hypothesis states that there is no significant change in the exchange rate throughout the years. We will first begin by choosing an appropriate stationary ARMA(p,q) model for our dataset with the null hypothesis stating that there is no trend. Even though we may see a cycle of 14 years by eye, there are many components that affect the exchange rate between USD and JPY. At around the year 2007, we start to see the exchange rate decreasing once more before rising again shortly after. There also seems to be a cycle of about 14 years, since the exchange rate was decreasing at the beginning of 1993, before rising upwards a few years later. We do see that there are some years where the exchange rate is high (1 USD to 140JPY) and where the exchange rate is low (1 USD to 80JPY), but these occur in a short term before moving back towards the mean exchange rate. The blue line represents the mean of the exchange rate.įrom the plot, we can see that the exchange rate oscillates throughout the months, but eventually tends to move back towards the mean. We will also look at the summary of the EXJPUS parameter. The parameter “DATE” gives the corresponding date for the exchange rate while the parameter “EXJPUS” gives how much 1 dollar is worth in yen during that date. There are 2 parameters of 301 observations each. The exchange rate for the first of each month is recorded and used for the data, starting from Februand ending on February 1, 2018.įirst, we will read in the data. The data used for this project is the monthly dollar to yen exchange rate for the past twenty-five years from. We will be using various techniques and models learned throughout the course and explore the fluctuations that occur over time. We want to explore whether or not the exchange rate tends to move towards the mean value exchange rate in the midst of the fluctuations. However, according to the dataset, the exchange rate is not always constant, and was even 1 USD to 80 JPY or 1 USD to 120 JPY at some points in time. Our goals are as follows:ĭespite fluctuations in exchange rate, we usually compare 1 USD with 100 JPY. In this project, we will analyze the monthly exchange rate of 1 USD to JPY over the past twenty-five years. Thus, it is important to know how often the exchange rate fluctuates and be able to predict the exchange rate in a future time. There are also some investors who invest in foreign currency in order to profit from the fluctuations of the exchange rate. These fluctuations in the exchange rate result from a variety of reasons, such as economic booms and recessions. As a result, an American will not be able to purchase as much for the same amount of money in Japan when the exchange rate is lower. For example, 1 US dollar may be worth 120 Japanese yen a few years ago, while the same 1 US dollar can be exchanged for only 110 Japanese yen at a later time. Over time, one currency may lose value compared to the other.
The exchange rate between two currencies is not set in stone. This is known as the exchange rate between two currencies. Thus, it is necessary to find out how much of one currency is equivalent to another type of currency. Because of this, it is possible for travelers to exchange the currency they use in their own country for the one that is used in the foreign country. Even though nations may use different currency, currency plays the same role as a medium of exchange in all nations. dollar is used in the United States while the yen is used in Japan. They will have to use the country’s own currency in order to purchase goods abroad. However, different countries use different kinds of currency, so people may not be able to use currency from their own country in a foreign country during travel. Currency is also used for traveling to other countries. It is used as a medium for purchasing various kinds of goods and essentials, from food and clothes to entertainment products. Currency is an important aspect of our daily life.
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