Consider the international currency markets and, in particular, whether geographical proximity implies association with respect to market movements. Because
FIGURE 11.3.5

FIGURE 11.3.6

the United Kingdom kept the pound and did not convert to the euro, we can examine changes of these important currencies of Europe. Data on daily percentage changes in the price of a dollar, in each of these currencies, are shown in Table 11.3.17.

a. Create a scatterplot of the euro€™s against the pound€™s percentage changes.
b. Given that the pound and the euro are both used in Europe, we might expect that their values, with respect to the dollar, would tend to move together. To evaluate this, compute and interpret the correlation between the pound€™s percentage changes and the euro€™s.
c. Test at the 5% level to see if there is a significant link between movements in the pound and the euro.
d. On a day when the euro€™s percentage change is half of a percentage point, what would you expectthe pound€™s percentage change to be?

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TABLE 11.3.17 Change in the Price of a Dollar in Selected Currencies Date 6/21/2010-0.15% 622/2010 032 6/23/2010 078 6/24/2010 015 6/25/2010 -037 6/26/2010 006 6727/2010 -032 6/28/2010 01 6/29/2010 027 630/2010 04 7/1/2010 035 72/2010 091 3/2010 1.40 7/4/2010 -020 75/2010 0.01 7/62010 0.21 77/2010 050 78/20100.4 7A2010 -050 7A02010 005 Pound -009% 0.09 0.39 0.78 049 004 3.64 -006% 0.41 0.01 0.09 002 045 0.16 0.08 0.05 002 030 -0.20 0.12 0.03 0.21 0.42 0.00 030 057 -0.94 0.66 0.11 043 0.02 0.20 0.12 0.02 0.14 -0.41 1.15 1/2010 0.18 7/12/2010 001 7/13/2010 3 714/2010 038 7A 2010 -0.75 7162010 -084 7172010 -086 7/18/2010 013 7192010 0.0 7120/2010 -017 7121/2010 018 0.10 001 004 0.19 1.09 0.26