Question: You have data on the exchange rate between the US dollar and the DeutscheMark from January 1973 to January 1986. From the data, you compute

You have data on the exchange rate between the US dollar and the DeutscheMark from January 1973 to January 1986.

From the data, you compute the continuously compounded return as

=log()log(1)rt=log(pt)log(pt1)

where pt is the value of the exchange rate at time t.

The plots of the exchange rates and of the returns are given in Figure 1.

What are the characteristics of the two plots?

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