G7 or Group of Seven are the seven most advanced countries in the world. In all they have five currencies, the Canadian dollar (CAD), the Euro (EUR), the Japanese yen (JPY), the British pound (GBP) and the American dollar (USD). Each currency has a substantial influence on the rate of exchange of the other four currencies in short-run, and therefore, any policy changes in any of the currencies can have spillover effects on the rate of exchange of the other 4 currencies. Hence the policy makers in the G7countries must pay close attention to the movements of all the five currencies when formulating monetary and exchange rate policies.