i)
Graph1.1
ii)
The time series exhibits a fair degree of volatility or randomness.The underlying level of the series over the given time period appears to be well contained in an underlying band of 0.9250-0.9450. The level of this time series also appears constant over the entire time series and hence a horizontal data pattern is observed.
Since the time series is relatively horizontal with trend and seasonality not apparent in this time series, then moving average and simple exponential smoothing would be possible predictors for future days USD/AUD exchange rates. It is important to note that although it would appear that the data is not strictly horizontal, there is no systematic tendency to a change in level at least with the data that is presented.
Note: Trend, seasonality,cyclical- not apparent in this time series, more observations may be needed.
The factors which are likely to have influenced the pattern observed is the supply/demand for the AUD which is affected by rate of inflation in each country, interest rates, weather each country has run a current account deficit (imports/exports), public debt and finally political and economic predictability. The United State’s negative economic state have continued over the time series thereby making the pricing of the dollar relatively stable hence the horizontal pattern which is observed. 0.0000827 0.00694000
iii)
MAE MSE
Naive 0.0079280 0.0000827
SES 0.0082559 0.0000757
5MA 0.0069400 0.0000733
SESnew 0.0082183 0.0000754
Table 1.2
Looking at the MAE, MSE results, it appears that the 5 period moving average outperforms the Naive model and the SES model for this time series. The MAE and MSE criterion suggest that the 5 period MA is the “best” pr ...