Validating a Model of Currency Valuation

Resumen

An empirical study of the foreign-holdings model of currency valuation is conducted with 116 undergraduates taking part in an international-business gaming simulation. Results are consistent with current understanding of ex-change rates. In the very long term, currency values of the model move in rough correspondence with monetary theory. In the short term, a high degree of uncertainty, with no repeating pattern, is evident. Uncertainty rose with the elapse of time between observations at the rate of about 1% per period.