I'm working with monthly data and I need to use FX rate in my model. I have daily data for exchange rate and not sure how to average it over the month. Should I compute simple arithmetic average over the month?

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    $\begingroup$ What's your end goal? Averaging may not be appropriate depending on what you're wanting to do with the exchange rate. $\endgroup$ – D Stanley Sep 19 '19 at 13:40
  • $\begingroup$ I want to use it as a predictor in a simple linear regression model $\endgroup$ – Andrew Sep 19 '19 at 13:41
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    $\begingroup$ For spot (e.g., as in balance sheet), spot exchange rate as at the position date would be more appropriate. For flow (e.g., income statement), average exchange rate would make more sense. Simple average would do, but if there is pattern in the flow (e.g., activity varies over the course of the month), then weighted average by activity/flow would make more sense. $\endgroup$ – Magic is in the chain Sep 19 '19 at 13:52
  • $\begingroup$ So depending on what you're regressing, either average, BOM, or EOM might make sense. e.g. if you're looking at monthly returns (which are typically using EOM values) then the EOM exchange rate might be more appropriate. $\endgroup$ – D Stanley Sep 19 '19 at 14:00

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