Posted by forex at 6:43 AM
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1. First, compile the currencies used by each nation. Belgium, the Netherlands, France, Germany and Italy all use the euro. Switzerland uses the Swiss franc. The United Kingdom uses the pound, the United States the dollar, Canada the Canadian dollar, Japan the yen and Sweden the Swedish krona.
2. Be sure to note these names carefully. Several other Scandinavian nations use currency called krone and kroner. Iceland also calls its currency the krona, so care must be taken to ensure you are always reading data or information about the Swedish currency. Likewise, Canada, the U.S., Australia and New Zealand all call their currency the 'dollar,' as do several other nations. So be sure you are always referring to the proper dollar.
3. Select a baseline currency. The U.S. dollar, because it is the world's most widely used currency, is a good choice, but other baselines can be used as well.
4. To determine a currency's volatility, track how its value has changed over time in relation to the baseline period. Determine what time period you wish to track (e.g., six months, one year, five years, etc.).
5. To track the volatility, you must measure what the percentage change in value is for a currency rather than its absolute value. For example, if one Canadian dollar was worth 85 U.S. cents one year ago and is now worth 95 U.S. cents, the absolute change is 10 cents and the percentage change is 11.7%. If one Swedish krona was worth U.S. 14 cents a year ago but is now worth 18 U.S. cents, the absolute change is four cents and the percentage change is 28.6%. So while the Swedish krona saw less of an absolute change than the Canadian currency, it saw a bigger change in percentage terms and was the more volatile currency.
6. To calculate the volatility of all G10 currencies, repeat the exercise outlined in Step 5 with the various currencies. You may use any currency, even one not from a G10 nation, as your benchmark or baseline currency.