You are part of a team evaluating foreign investment opportunities for your company. An important
component to the valuation is forecasting future exchange rates. You are based in Euro Zone and
the investment opportunity is in the United Kingdom .
You decide to build a regression model that can be used to estimate future exchange rates using
economic data. You expect that future exchange rate changes depend on a number of economic
variables such as the two countries’ real GDP growth rates, the difference in inflation rates, and the
difference in long-term interest rates between the two countries.
Instructions
Follow the steps below for the analysis. The base currency is EUR and the quoted currency is GBP.
Use the estimated coefficients from your regression model to forecast the future exchange rates.
Report all your answers as decimal values. If your answer is 1.23%, report 0.0123, not 1.23.
Data Collection
Obtain market exchange rates for the period starting on the first quarter of 2000 through the fourth
quarter of 2017. Use calendar quarters (i.e. March, June, September, December). So you may
validate that your data is correct, answers are provided in parenthesis to several questions. You
want to know the amount of GBP per EUR