Back-Testing Methods Used to Estimate Future Spot Exchange Rates Utilizing Bloomberg Data

Abstract

Since students ask for real life examples and employers look for better excel skills, I added an empirical project to International Finance class. Using Bloomberg data students, in teams of four, calculate annual and average annual currency appreciations, as well as, various parity conditions between dollar and major foreign currency. In the last phase of the project students back-test methods for predicting future spot exchange rates. As an incentive to experiment with different lengths of the estimation period, the team with the smallest standard deviation between estimated and actual exchange rates earn bonus points.