Minimum Spanning Tree Application in the Currency Market

Paper has been inspired by the minimum spanning tree (MST) methodology originally used in the field of stock returns. The objective of our contribution is to apply the approach in the foreign exchange markets. The methodology enables us to visualise complex and difficult market relations in a very obvious manner. We identified mutual positions of the relevant European and world currencies. Our findings are confirmed and complemented by the Sammon method as well. The European currencies are characterized by comparatively high diversity. The central position of China-related economies such as Hong-Kong and Singapore has been proved. Polish currency seems to be crucial in the Central European region.

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